With FTSE 100 CEO earnings at a ratio of 120:1 against an ordinary worker we’ve reached the monopoly money stage of capitalism. All money is now monopoly money.
Playing monopoly, you take money from the bank each turn. The same thing happens with what we’d describe as real money. You take money on a regular basis, either from a corporation, or a government, that came from a bank. All money originally comes from a bank. (‘Bank’ means a lending institute). The only difference between monopoly and the real world is a middleman. If it comes from a corporation we consider you’ve ‘earned’ the money and if it comes from government, even if you work for it, somehow, it’s not as ‘earned’ as corporate money. (This is an interesting distinction that should no longer exist but that’s for another post).
All money is monopoly money because money no longer reflects ‘value’. It reflects power. The good news is that if money only reflects power then those that don’t have it can empower themselves and take it. That’s what this blog is about.
A short journey through the application of power.
The CEO
(Everything that applies to the CEO applies to the rest of the C-suite).
1980 CEO vs 2023 CEO
In 1980 average UK CEO pay was £115,000 vs 2023 UK CEO pay of £4,190,000.
1980 CEO pay adjusted for inflation is £595,000. So, like for like…
In 2023 money, 1980 UK CEO pay £595,000 vs 2023 UK CEO pay £4,190,000.
So, in real pay terms, today’s UK CEO is paid 7 times more than the same job in 1980. Using money speak, one 2023 CEO is worth 7 1980 CEOs. But using power speak, today’s CEO is 7 times more powerful.
It makes much more sense to talk about power, than money, or value, or worth, because using any of those metrics the CEO salary makes no sense. Let’s think about it, say today’s CEO is a little more educated and is more talented, that gets me to a 50% better salary at best.
Power vs Value
To sell this application of power as reasonable, we hear the argument that the CEO needs to be paid more to attract the best talent. Unfortunately, the evidence for this is very weak because the evidence contradicts that argument.
Firstly, there’s 8 billion people on the planet, the idea that the current crop of CEOs is so special that somehow they, and only they, are the best people for the job is on its face ridiculous.
Secondly, and this should put the argument to bed, if these are the cream of the crop why is our economy so mediocre? I mean, seriously, think about it. These geniuses, the supposed best in class, have been in charge for decades, why is the economy performing so poorly. If you’re paying 7 times the salary, in a performance based position, I would expect at least 7 times better company performance.
The FTSE 100 was 1000 when it started in 1984, today (4th Nov 2024) it’s 8212. Roughly 8 times higher. That is with inflation baked in. So, we’re comparing the £115,000 CEO pay with the unadjusted £4,190,000 number, 36 times higher. If CEO pay reflects stock market performance the stock market should be at 36000. Or, if CEO pay reflected actual stock market performance the pay should be 8 times higher, £920,000. This figure makes much more sense as we already worked out the inflation adjusted pay for a 1980 CEO was £595,000. Would you look at that, today’s CEO should be paid only about 50% more based on performance! But that’s the logical, rational argument about value, which is not what’s at play here. What’s at play is power.
Today’s CEO vs today’s Doctor
We have a benchmark figure for salary that reflects education, experience, and talent that I think society is generally comfortable with, a doctor’s salary. Some may argue they are now underpaid, but for the purposes of this comparison we’ll use current figures. In the UK, getting into a medical school is a challenge. They, quite rightly, take the cream of the education crop. And I don’t think anyone would argue it doesn’t take talent to become a doctor, and experience should be, and is, reflected in their salary schedule.
So, let’s look at what a doctor earns. Yearly earnings lie somewhere between a first year resident doctor at £32,398 and a consultant with 14 years of experience at £139,882. It takes a five year medical degree and an additional 6-8 years of training to become a consultant. So, 25 years of education and training before earning £139,882. But somehow a less educated, less trained, less experienced CEO is earning 30 times that amount. Per year. That is clearly an exercise of power not performance.
The CEO vs the ordinary worker
Back when our story began in 1980 the CEO was already earning £115,000 p.a. A salary so high that it would still put you in the top 5%, almost in the top 1%, of earners today, 44 years later!
Compare that to the 1980’s average UK worker salary of £6,500 p.a. A ratio of 18:1.
So, for me then, even in 1980 the CEO salary was really a reflection of power not performance. There is no metric that would privilege one person over another to the tune of 18:1. And that ratio is now 120:1 (£4,190,000: £34,788).
Apparently, we are meant to believe, today’s CEO is so fantastic, so extraordinary, so mega productive that by May 26th of any given year they have ‘worked’ the equivalent of the entire working lifespan of an ordinary mortal.
All money is monopoly money, because CEO pay has made the idea of money representing value a complete nonsense. The CEO’s supposed value is a mirage, it doesn’t exist. The salary reflects performance argument has been rejected, the FTSE 100 is not trading at 36000. It reflects power, which is why the ordinary worker’s salary hasn’t improved because unions which used to exercise power for the worker have been neutered. The average worker salary of £6,500 p.a. in 1980, adjusted for inflation would be £33,620 p.a. in 2023, 43 years later, it was only £1,168 more than that at £34,788 p.a.
I don’t know how much more evidence you’d need to see before realising you’re being taken for a ride. The simple fact is the people in charge have gifted themselves untold wealth at your expense. All money is monopoly money.