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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