Quote:
Originally Posted by Llarry
Quote from Robert Reich, former U.S. Secretary of Labor:
"Why are we talking about whether paying fast food workers a better wage will drive up the cost of a Big Mac instead of asking how much McDonald's CEOs $17.8 million salary is driving up the cost?"
In my opinion, the CEOs and other senior executives of successful corporations should be well-compensated, but I think the numbers have generally gotten way out of hand in the past decade or two.
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Reich, who I’ve always thought more a political hack than quality economist, should know the answer. The CEO oversees the entire corporation. Thus his compensation is considered a fixed cost, overhead. For cost analysis spread that over total units. I can’t get total burgers or meals or something like that quickly, so I used stores worldwide. His salary is equal to about $435 per store, annually. Note that he is hired by the board and responsible for delivering growth in profits, which should be a major driver of his compensation as well. If he delivers growth, his compensation will be spread over fewer and fewer units (locations, burgers, whatever), improving overall financial performance of McDonalds.
The burger flipper is analyzed by looking at the number of burgers or meals served in the location where he works (and really only the one he works at) or the appropriate “unit of production” for his assignments. Thus his cost is evaluated as an input to the cost of the burger, fries or whatever. An increase in his compensation directly impacts the cost of the burger. If his cost increases too much, or is forecast to continue increasing, the location will try to get more efficient (have him or a replacement be more productive), and the corporation will look for technology substitutes (robots, kiosks, etc) so that the cost per unit of production can remain as low, and competitive, as possible.
Reich might as well have asked why we worry about the cost of potatoes (for the fries) instead of the CEO salary.