Count the Noncash

Richard Quinn

MOST PEOPLE THINK of their earnings as what they receive in their paycheck. But that’s not the case. Typically, it’s more—sometimes far more.

That brings me to my first topic: chief executive officers. You’ve all heard the numbers: This or that CEO was paid a salary of $30 million. Actually, no CEO was paid that sum or close to it. Those amounts represent total compensation, which might include their regular salary, stock awards and options, and the projected future value of a pension. Much of that compensation is at risk. Stock options may expire worthless.

Also, most CEO pay isn’t in the tens of millions. Those stratospheric numbers apply only to some CEOs of the world’s largest companies. Most CEOs have compensation of less than $400,000, lower than the minimum salary for a rookie player in the NFL.

Admittedly, some CEOs receive total compensation that may not reflect solid performance. Simply put, they don’t deserve it. But we still need to keep the numbers in perspective.

For example, I looked at the compensation of the CEO of an S&P 500 company with 144,500 employees. His cash compensation was $4,987,635, equal to $34.52 for every worker at the company. His total compensation equals $153.67 per worker. Based on what I could find, the average hourly worker earns $16 to $18 an hour. Let’s call it $17. At that rate, their annual pay of $35,360 means that—if they each got their share of the CEO’s entire compensation—the 144,500 employees would receive a raise of 0.4%, equal to seven cents per hour.

While some CEO pay may cause consternation, I’d argue more Americans are adversely affected by the salaries of sports figures and celebrities, because their incomes drive up ticket prices for sporting events, concerts and movies. Which brings me to my second topic: the typical employee.

Understandably, workers tend to look at only part of their pay—the cash they take home. There are, however, the various payroll taxes paid by employers, which help bankroll Social Security, Medicare, and disability and unemployment coverage. Then there’s the employer cost for various employee benefits, including health insurance, an employer’s retirement contributions and time off with pay. Some of these benefits are tax-deferred or tax-free. They all have real value. According to the Bureau of Labor Statistics, employee benefits cost an average $11.60 per hour, or 31.3% of total compensation. For most government workers, benefits packages are even more generous.

Some people would say, “So what? You can’t eat benefits.” Maybe so. But trying to replace those benefits on your own would mean buying a lot less food with your remaining cash. We used to call benefits the “hidden paycheck.” But I wonder if today’s workers give that hidden paycheck a second thought. Rather than seeing the portion paid by their employer, they focus only on their own payroll deductions.

When I look at the depressing numbers that detail Americans’ modest savings, rampant spending and hefty debt, a somewhat heretical thought comes to mind: Do Americans need more done for them? Should we focus more on noncash compensation? Have past efforts to encourage saving and overall prudent financial behavior failed?

And if so, should we care? I think there’s no choice but to care, because of the potentially adverse effects on society. That raises a thorny question: How do we approach the problem?

Should we simply increase Social Security taxes on both employers and employees, thereby assuring higher retirement benefits? Should we increase the tax incentives that encourage personal savings? Should we promote more stock ownership and profit sharing by employers? I’m thinking all of the above.

Some would argue for simply raising the minimum wage. But that’s not a fix to our long-term problems. It affects a small segment of workers. It’s also treading water, because consumer prices will rise to absorb the cost not only of those directly affected by the new minimum wage, but also those who are earning more and who get their compensation increased, so they maintain their position relative to minimum-wage workers.

My logical side says individuals should be able to manage their financial life on their own. But the evidence tells me otherwise—so my practical side says we need new initiatives, including a greater focus on employees’ noncash compensation.

Richard Quinn blogs at Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include It’s a StretchGoing Without and Getting Catty. Follow Dick on Twitter @QuinnsComments.

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Debbie D
Debbie D
1 year ago

I definitely value what my employer pays for health insurance. I have excellent health insurance for low price when I compare it to what others are having to pay through their employers with much less coverage. Between the health insurance, more time off and pension, I can not imagine working anywhere else. My benefits easily add on $8-10K annually to my salary compared to another company. But bottom line is there is no way I could fully pay the amount for the quality of health insurance I have.

Langston Holland
Langston Holland
1 year ago

We know we have a huge American problem with saving and investing for retirement.

There are two parties involved, the individual and the government. We are slowly but surely choosing the extent to which each participate in the solution. In the realm of efficiency, I’m convinced a mentally and morally (biblically referenced) healthy individual can achieve a superior result. Subtract from either and a safety net is needed. Thankfully, we are long past economic structures that required physical strength for successful employment.

The next election will help reveal which direction we are headed and at what speed. In the mean time, I am very thankful I had the freedom to manage my own life. God bless America. 🙂

1 year ago

“Average pay of CEOs at the top 350 firms in 2018 was $17.2 million—or $14.0 million using a more conservative measure. (Stock options make up a big part of CEO pay packages, and the conservative measure values the options when granted, versus when cashed in, or “realized.”). CEO compensation is very high relative to typical worker compensation (by a ratio of 278-to-1 or 221-to-1). In contrast, the CEO-to-typical-worker compensation ratio (options realized) was 20-to-1 in 1965 and 58-to-1 in 1989. CEOs are even making a lot more—about five times as much—as other earners in the top 0.1%. From 1978 to 2018, CEO compensation grew by 1,007.5% (940.3% under the options-realized measure), far outstripping S&P stock market growth (706.7%) and the wage growth of very high earners (339.2%). In contrast, wages for the typical worker grew by just 11.9%.”

Mik Barbasol
Mik Barbasol
1 year ago

There won’t be many rich people left if the failed ideology candidates get elected…I’m not aware of any poor people creating jobs.

1 year ago

I think people are much more concerned with benefits than they used to be because they can no longer be taken for granted. As a recently retired professor who taught HRM (among other things), I was impressed by the fact that in recent years my students were much more interested in benefits. When we discussed the reasons for this they indicated that their parents emphasized the importance of health care as well as their concerns about retirement income. The fact healthcare is consistently near or at the top of the issues rated most important by voters reflects the fact that American workers are concerned about more than just their take home pay.

Peter Blanchette
Peter Blanchette
1 year ago

Uwe Reinhardt, who has sadly left this veil of tears, once said that
“employee-benefit managers, basically kindly social workers camouflaged
in business attire, are similar to pickpockets who take money out of
your paychecks and then use it to buy you health insurance, for which
you thank them profusely.” (NY Times, 4/2011, The Economics of Privately
Sponsored Social Insurance). In the same article he also said,
“Employment-based group health insurance, American style, is publicly
subsidized, privately sponsored, community-rated social insurance sold
to American employees on formally organized health insurance exchanges.”
Also, he said, “the employees actually pay most or the full
premiums for their employment-based health insurance, even if they do
not make an overt contribution toward the insurance premium.” And,
“Estimates consistently show that high-income earners in high marginal
tax brackets receive the bulk of that public subsidy”

I’ll never think of you in the same way again!

R Quinn
R Quinn
1 year ago

Except few actually buy health insurance. What we did was commit to an unlimited liability and then charge the employee a portion that started at zero and grew from there, but mostly payments with tax-free money.

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