Bo Schembechlar, the late, esteemed head coach of the Michigan football team said: “The Team, The Team, The Team”, when he addressed the team in 1983.  “No man is more important than the Team.”

That belief is (allegedly) shared by Dennis Builenburg, CEO of Boeing.
Mr. Builenburg did an interview with Kai Rysddal on February 11, 2019’s show of the public radio show, “Marketplace” (segment begins at 16:25).  The full interview was broadcast on Marketplace’s Corner Office Podcast.

@2:30 (slightly edited for clarity and emphasis)

KR: “102-year old company. Coming off your best year ever. How much of that was you and how much of that is this is just a good time to be an aerospace company in the global economy?“
DB: “Well it’s all about the team. I’m just extraordinarily proud of our team’s performance. We have the most amazing talent in the world, and I think that is the number one key to our success….“

How does Boeing show that pride in its talent?

Section 953(b) of the Dodd-Frank Act requires publicly traded companies to disclose, publicly, the median employee income and the CEO’s annual total compensation.  This is usually disclosed in a proxy to the public company’s annual financial disclosure, their “10-K.”

Let’s look at Boeing’s 10-K compensation proxy!

Page 46 of the Proxy:
1. For 2017, median employee income = $111,204.
2. CEO compensation? $18,450,416.
3. The reported ratio between the two? The CEO made 166 times the median employee.

This is an imperfect shorthand, but another way to say this is that the CEO’s time and energy was worth 166 times more than their average employee.  Not their base/bottom employee, but average employee.

EDITORIAL: I think that’s kind of unreasonably high.

This is an incomplete list (that I hope to make more complete over time), but here are some factors that might speak to compensation:

1. Experience.  Mr. Builenberg has been with Boeing his entire professional career, since he was an intern.  Maybe that’s worth x2 his compensation over another employee.  (E.g, for work that you pay an average employee $50K for, you’d pay him $100K.)
2. Work Day.  A CEO doesn’t work 9AM to 5PM or 40 hours a week.  Let says he works 100 hours a week.  That’s a x2.5 factor to an average 40-hour week.   ($50K vs. $125K)
3. Responsibility.  CEOs are undoubtedly responsible for a lot more than a company’s average employee.  Let’s say that’s a x2 factor.   ($50K vs. $100K)
4. Risk: CEOs – or Chief Executive Officers – have to make executive decisions, which I’ve come to appreciate involves assuming a lot of risk most employees don’t ever have to.  Let’s say that’s a x4 factor.  ($50K vs. $200K)
5. Effectiveness.  Let’s say a CEO is really effective.  From the interview, under Mr. Builenberg, Boeing had it’s best year ever.  Let’s say that’s a x2 factor.   ($50K vs. $100K)

Cumulatively, the above gets you a combined factor of x80, or about half that of the actual ratio. I also think this factor is better applied not to their median employee, and probably not their bottom employee, but somewhere in between (bottom 25% percentile, maybe) (EDITORIAL: I’m kind of appalled even arriving at this x80 factor.)

EDITORIAL: I hope to use this blog to flesh this out for myself and anyone who cares to read this, but my working hypothesis is that income inequality is a significant driver in the wealth gap (which is a serious problem, but for another post); an increased wealth gap leads to country/community instability; community stability is either an ignored or a super-discounted factor in the wealthy’s decision-making both for the medium and long term, which only worsens the problem.  Relatedly, I also think that non-executive workers are under-valued with respect to the comparable value they bring to a company.

With the disclaimer that yes, I understand Boeing’s CEO compensation wasn’t all cash, what could Boeing have done with the money had the CEO’s compensation been cut in half (still netting him $9 Million)?

How many employees could they give another $1,000/month with that money ($12,000/year)?  
$9M divided by $12K = 750 employees.

What about Boeing’s other top  executives? They report compensation for four other executives in their proxy (Page 37).  Those other reported compensation totals? $17M, $9.8M, $9.6M, and $7.2M.  What if all five of the executives comps were cut in half? That’s $30 Million!

Number of employees who could get another $1,000/month ($12,000/year)? 2,500 employees.

I’d venture that another $1,000/month would be pretty meaningful to the 2,500 employees at the bottom of Boeing’s income scale.

I only mean to use Boeing as an example.  From the outside, Boeing actually seems like a cool company.  I have no doubt flown in their planes (Coach) and space is dope.  I don’t have anything against Boeing as a company or Mr. Builenburg as an individual.   I’m sure he brings much more value to his company than I do to the company I work for.  I’m sure he brings a lot more value to his company than their average employee.  I just don’t think it’s 166 times more. Admittedly, you increase just a few of the assumed factors, and it’s not hard to get to x166 (but move them in the opposite direction – like a CEO who works 60 hours/week, not 100, and you get a much smaller number quickly).  

As evidence that I really have nothing against Boeing specifically, two other points:

First:  later in the interview, Mr. Builenburg says that with the additional capital they realized from the 2017 tax reform law, they allocated $100M into the workforce, spread out over education, health care, and salaries.  He doesn’t specify how much of that $100M actually went directly to wages or which employees it went to, but 1/3 is roughly the same number as the executive compensation split number I use above, if you want to determine on your own how meaningful it really is.

Second: I actually think (my opinion), that their median $100K+ income is pretty good relative to other big public companies whose 10-Ks I’ve looked at.

Still, I think it’s worthwhile to be mindful of how our society and its corporate institutions compensate its citizens and workers.  Is this really how it should be done?  I hope to explore that more.

If you made it all the way to the end, I appreciate it. 

Pay your people.
–The Anxious, Amateur Economist