The middle class in America is the next endangered species. Drastic as it may sound, this isn't too far off.
When people look back to the past many times they will cite a time in the 1950's as being the "good ole days". In the terms of the American economy, this argument could actually be made when it comes to the class system.
In 1950, the ratio gap between a CEO and his average paid employee was 20 to 1. By 1980, the number jumped to 42-1. This gap is now up to 350-1 on average. To put that into terms, the average employee would have to work nearly nine weeks to equal what his CEO made in only one hour of work.
When a company doesn't perform, it is often people at the lowest levels that are blamed for poor performance, but could some of it be the cost of the CEO to the company? J.C. Penney's former CEO Ron Johnson oversaw the decline of his company when in turn he was making 1,795 times more than his average employee. While a single pay cut for a CEO might not be enough in his case, the culmination of the board could have made a dent in the right direction. Johnson was ousted for J.C. Penney's drop in financial performance, but much of the board is still there.
One company, considered golden in the United States, Apple, not only has paid their CEO's a ton of cash, but has enough in the bank to not sell a single product for seven years and still be able to pay every single one of their employees. A company should keep money stored away for a rainy day, but how much is enough. At least while Steve Jobs was CEO, the company saw its level of innovation increase substantially, but not many CEO's can say they matched Jobs' rate of innovation for their company.
Another company, considered beloved by Americans, Disney, awarded their second-in-charge, Michael Ovitz, $38 million and $100 million in stock when Michael Eisner dismissed him from his position in 1997. This was after Ovitz only worked for Disney for less than 16 months and doesn't actually include his pay while he was employed. Was he worth at least $138 million to Disney? Probably not, but imagine what Disney could do payroll wise with $138 million. Shareholders tried to sue the company over the $100 million in stock given to Ovitz, but Disney claimed that the $100 million was his incentive to leave Creative Artists Agency (CAA) and join Disney. The courts upheld Disney's severance package decision.
What makes the gap worse is that many Americans aren't even aware of the difference. A study done by Harvard Business School produced research that Americans believe that the average CEO makes only around 30 times more than the average worker. "Americans drastically underestimated the gap in actual incomes between CEOs and unskilled workers," the study says.
The second largest CEO to average worker gap in the civilized countries of the world is in Switzerland and that is less than half of the gap in America, at 148-1. Denmark is at 48-1, Japan 67-1, and Israel 76-1.
CEO's should make more than anyone else in their company, especially if they are the company founder or at least the one who created the product that put their company on the map. But when the gap is significant, it could break America's back.
The unfortunate view in America is that often it is the average person who becomes demonized. As protests around America happen, people can't stand the idea of a fast food worker making a minimum wage of $15 an hour. Often memes online demonize fast food employees when they are compared to emergency responders or American soldiers and their rate of pay. The reality is that soldiers and first aid responders are also grossly underpaid, and if a fast food employee makes $15 an hour, in no way does it mean their work means more to than a soldier. Another reason $15 an hour isn't as high as it sounds because the buying power of a minimum wage worker in 1968 is nothing close to it is today. Compared to a minimum wage worker today, a worker today would have to make over $21 an hour to have that same purchasing power as someone did in 1968. Instead, the federal minimum wage is $7.25.
The rate of pay for lower paid workers never keep up with the rate of inflation, but a CEO's rate of pay went up over 1,000 percent during the same period. This is despite that the regular employee is the one demonized by much of America, instead of the CEO, especially with a Fortune 500 company.
Henry Ford in 1914 made a bold decision that kick started the growth of the American middle class in the 20th Century. He paid double the price of what the average factory worker made elsewhere. Paying double amount to an employee sounds like it could be the main ingredient toward bankruptcy for some, but in fact his turnover was lower than any other company, his profits doubled in less than two years, and Ford called it the best cost cutting procedure he ever did.
"A business that makes nothing but money is a poor business," Ford was quoted as saying.
This move by Ford not only gave his employees more money in their pockets, but it gave them more money to spend. He believed that his average employee should be able to afford to buy one of the very cars they made.
When the people at the middle class levels and lower receive more pay, studies have shown that more money is actually injected into the economy and businesses benefit as a whole. The poor would most likely spend almost every penny they make on consumer goods from clothing, food, transportation, and entertainment. The middle class is a little more likely to save a little more, but would still have more money on hand to spend. The tourism industry would get a boost, their children would find paying for college a lot easier, and even the money saved would eventually be spent in the elder years of the middle class.
The gap needs to shrink back to levels it was in the middle of the 20th century for America to be "great again".
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