Why Visier

Totally Rewarding Chats | Ep. 08: The Meaning and Ramifications of the CEO Pay Ratio

Sean Luitjens and Chad Sowash discuss the topic of CEO pay and its impact on the working class. Watch or listen now.

Totally rewarding chats with Sean Luitjens and Chad Sowash

Insights on recruitment tech and CEO pay disparities

Chad provides his background in the recruitment tech industry and highlights the significant disparity between CEO pay and the pay of typical workers. They discuss the short-term focus of CEOs and the issue of golden parachutes for underperforming executives. They explore potential solutions, including implementing a maximum ratio between CEO pay and employee pay, getting money out of politics, and changing the perception of HR as a cost center.

Chad Sowash - The meaning and ramifications of the CEO pay ratio

In this episode:

  • Host, Sean Luitjens, General Manager of Compensation Benchmarks, Visier

  • Guest, Chad Sowash, Co-Founder & Co-Host, Chad & Cheese Podcast

Episode transcript:

Sean Luitjens
All right, another totally rewarding chat. Gonna get started. Gonna do something a little different today. Gonna talk about CEO pay, et cetera, with Chad Sowash. And if you know him from Chad and Cheese, that's great, but there's actually a little more background to him than that. So instead of me trying to ruin your history, I figured I will have you give us a background, you know, an elevator pitch of I don't know how many stories and kind of give the history of how you ended up where you are now.

Uh oh. Yeah, poor kid grew up born and raised in North central Ohio, Mansfield, Ohio, Galleon, Mansfield, Ohio, uh, went directly into the military cause it couldn't afford college and knew I was going to, uh, easily, uh, party my ass off. So I went directly into the military instead of directly into college, uh, bumped out of there and got sucked into the corporate world, believe it or not. Uh, found my way into, uh, the, um,

Recruitment tech industry. I was actually with monster.com before it was monster.com Launched in january of 99 which you well know you're there for the all the fun stuff super bowl commercials, etc Etc i've been in the space ever since Mainly working with major fortune 500 companies Around tech around process methodologies around building talent pipelines around

So, been able to do a lot and then really dig into the tech. I was a lead on building the National Labor Exchange, which connected all the state job banks together for job distribution for major Fortune 500 companies who were federal contractors, which are most of them. And then also I am the only guy, I think still today, who led a project that was a single search engine platform that fed

40,000 different domains. We were working directly with the.jobs top level domain, and we were able to use boston.jobs, and our search engine just automatically spit just boston.jobs into that domain. And then we had boston.sales.jobs, and cleveland, you know, technician.jobs, et cetera, et cetera. But the search engine actually went and pushed the relevant content to 40,000 different domains.

We did that for one reason, number one, to see if we could do it. And secondarily reason, we wanted to see if we could kick indeed and see if Google would realize what we were doing. And obviously, it didn't work out because nobody knows about it today. Military background, as I had said, I went to actually work as the CXO over at Recruit Military. I built veteran talent pipelines.

When I was at Ronstadt in their RPO division, worked with big companies like Ford Motor Company. I got burnt out and I ejected and found myself back doing consulting and then also starting a podcast with a really good friend of mine, which was more of a branding exercise and it exploded.

Chad (04:17.065)
Yeah, bourbon and really just trying to soak up every experience I possibly can. We just, we've, we've got a little place on the southern coast of Portugal, which is really our base camp for us going out and trying to do as much as we can to explore Europe during that time. While we're there, I've picked up a game called paddle P A D E L, which is kind of like a, a cross between tennis and racquetball, which is it's amazingly fun. Everybody plays pickleball around here. I've played it a couple of times and I've played racquetball in tennis. And unfortunately, pickleball is incredibly slow and I hated it. I played paddle and I just, I love it. So we play that a lot when we're, definitely when we're in Portugal. It's starting to catch fire here in the U.S. but not quite enough where I have a court close to me.

Sean Luitjens (05:15.918)
I'm gonna have to Google, check it out. All right, so you and I on a couple different coffees have talked about this, and we get going. In fact, we almost missed the show today because we started chatting about it before. And then I'm like, I gotta go back and click record, dude. So let's talk about this whole CEO ratio to employee piece. And so just to get it started.

Chad (05:18.978)
Yeah, that's cool.

Sean Luitjens (05:43.442)
I'll let you set the table around defining what that is. And then actually, if you just want to roll right into either what irks you or where you see the problem at, we'll just start with that.

Chad (05:53.537)
Yeah. Yeah, well, I'll just go to the Economic Policy Institute who cited that CEO pay slightly declined in 2022, but has soared 1,209%. Over 1,200% since 1978 compared to 15.3% rise in typical workers pay. So CEO pay continues to outpace the pay of the working class people across the United States. That's an issue to me. 1200 times versus, or percents, versus 15.3%. That to me is not only an issue, but I believe everything that we're seeing from dissension in the ranks, not just with workers, but just throughout America entirely, is tied back to this.

Sean Luitjens (06:45.442)
So I know, and every time I've heard you say that number, it's a big number on what was probably, it was a bigger number on what was probably the bigger number to start with. So, you know, in my nerd mind, I just start building a graph of how it goes, right? So how, like, when you think about it, I always kind of go to an athlete analogy and then you can beat this up. You know, someone walks in and says, I can make this kind of money if you pay me this much, I can make the company this much, is it worth it? They want the best available talent and somehow that happens. So how do you see this kind of working out? And I know we've also talked to throw stuff at you. On the flip side, you've got, you know, I just saw in Massachusetts to comfortably live, which I didn't read a ton of it, you know, to a married couple, married, well, two people, two adults, two kids, whatever that constitutes to live comfortable.

I'm in Western Mass, so I assume this is Eastern Mass, but $300,000. So you and I have talked, a lot of people are working multiple jobs, doing whatever. And meanwhile, we've got the CEO on the other side. But how do you start to address it, I guess? Like, how do we even, it's huge. How do you deal with the economics of it?

Chad (07:50.937)

Chad (08:01.717)
We have to understand the basics first. And so I want to boil it down in real world numbers. And I want to start with, in 2023, General Motors CEO, Mary Barra, received $27.8 million in total compensation. So as of April, 2024, the average hourly pay for an entry-level GM job in Detroit, Michigan is $18.47 per hour.

That's less than $40,000 a year, $38,417 per year, working a 40-hour week no overtime, right? Now, as per the MIT's living wage calculator in Detroit, Michigan, or Detroit-Dearborn, a living wage for a single person, no children, is $20.42 an hour. So the entry-level worker is not even making a living wage. No wonder...

Sean Fain and the UAW are looking like heroes with a 25% increase in base pay over four years with the top assembly plant workers earning roughly $42 per hour. But remember, Mary Barra fought tooth and nail against increases and called the UAW's negotiation tactics theatrics.

Chad (09:29.149)
represents, listen, 720 workers, 720 working class Americans. Does that seem fair? That's crazy. So if you took, ask yourself this question, if you took 720 workers out of GM plants for six months, would it affect production and revenue?

I think we've answered that question when the UAW started pulling people out, right? GM, they were having issues. So we know that pulling people out of plants are going to impact production and revenues. Now, if you took Mary Barra, the CEO, out of the chair for six months, what do you think that would do to production and revenues? Do you think that would even affect the organization?

It might, but it wouldn't to the effect of 720 employees. I think that's how we need to start thinking of this is she worth 720 of these employees? No, should they be paid more? Yes, I think that is at least a good place to start.

Sean Luitjens (10:48.282)
So I agree with that and we'll come back to how we tackle that. I think the other piece, so when I think of CEO pay, the thing that kind of gets me at the top, because I still struggle with the supply and demand, you know, you're like, if I don't pay that much, someone else will pay that much and I theoretically think they're worth that much or they're going to bring that much in the bottom line. But where I think I get a little burnt over at all is, I guess you can put these into two things, the short-term focus.

So it's all about, you know, look, if you told me I could, you know, do something for two years and it doesn't matter the detriment, like I don't think I could scruples do that, but that's what it kind of looks like. They're after the short-term pay, I make my bonus and then I leave. And I think the other piece would be, I don't know what her golden parachute is, but more frustrating to me would be if she's doing a poor job, isn't making numbers, they don't think they're doing well, that she gets that kind of money and gets.

Chad (11:17.113)

Sean Luitjens (11:41.878)
you know, 720 workers worth of wages to leave, we all know a good severance package might be two weeks pay per couple years or a year, you know, capped out at three months.

Chad (11:53.525)
Yeah. A week. Yeah. A week per year on top of that. So you get two weeks plus a week per year. I mean, yeah.

Sean Luitjens (11:59.722)
Yeah, on average, somewhere in that ballpark. So someone who's worked 20 years is gonna get, you know, just short of a third, just a little more than a third of a year's wages if they're let go. Whereas, you know, they see these big parachutes. So I don't know how you start to square all that on top of it.

Chad (12:16.141)
Well, I think the way that we square is we start treating people the same and fairly, right? These CEO comp packages are, I mean, they are set up to be able to pretty much set up a mirage where they're like, well, they're only getting stocks and shares. Okay, those are things that first and foremost, they do have worth, okay? And total comp overall, plus a golden parachute. Tell me what...

factory worker gets a golden parachute when they leave, right? Um, so I understand there is huge worth behind the leadership and being able to provide and also execute on a vision But the thing that we're missing here whenever we talk about that are the people that actually execute The ones who are doing the day-to-day job So once again, if you take those 720 people out of the equation the whole machine falls apart

You take her out of the equation, that's not that big of a deal. Now, why am I picking on Mary Barra when according to 2022's compensation data ranked her as the 97th top paid CEO in the world? I did it for a few reasons. First and foremost, she makes more than Ford CEO, Jim Farley, top three. And the numbers I cited seemed ridiculous, right?

But there are 96 other CEOs who make higher comp than she does, not to mention the UAW story provides a really great framework for us to understand how living, working Americans actually equal out to her compensation. So I think from our standpoint, we really have to think about how did this happen, right?

And we take a look at trickle down economics that started back in the Reagan era. And trickle down economics, it didn't. The wealthy kept the cash at the top and the working class Americans are scraping the bottom of the barrel. Hence, 1200 percentage points of growth for CEO pay and 15.3 for working class, right? Then the 80s rugged individualism narrative which was created.

Chad (14:40.217)
to help bust unions and it worked right and as Americans today were more divided than ever and I Believe we're more divided than ever Because we don't have enough money to be happy to be able to cover we're working overtime We're working more than one job. So, you know, this is the problem. How do we fix it?

we look at trying to create comp packages that are much more fair. If you take a look at the rest of the world, CEO comp is not at 700 times, it's 30 times, which is exactly what it was back before trickle-down economics apps.

Sean Luitjens (15:22.238)
So, but I guess is that legislate? I don't actually know at that level from multiple reasons, I guess. I've been more of a broad-based person for a long time. So I understand the exact comp side of it, but like, how do you fix that? Is it legislation? Is it whatever? Because again, I'll come down to, you know, hey, you know, I can pay this much to get Sean or I can pay this much to get Chad. Sean's kind of a loser. I want Chad because he's, you know, he's a leader. So like, and this is what Chad's asking for.

Chad (15:42.349)

Sean Luitjens (15:51.71)
I can get my head around $27 million. I can't get my head around the 700 people every time you say that, but $27 million when you think of it as a percentage of the business, like if you said somebody owns a business in a regional business, the CEO percentage of the top or if they're the owner. So now that math actually squares because I don't know how big GM is, but I know it's big.

Chad (16:00.493)

Sean Luitjens (16:20.342)
But how do you start to throttle that down so that there's a cap on it somewhere?

Chad (16:25.077)
Yeah, well, I think it's incredibly important to understand the percentage that the CEO is making versus the rest, right? So we're talking about distribution of wealth is what it all comes down to. And the way that it is, it's incredibly top heavy, right? It's trickle down economics that never trickle down. So it went up to the top, whether it's Mary Barra, it's Farley over at Ford, it doesn't matter, right?

it went up and it never actually came back down. And it went out to shareholders and board members and so on and so forth. I believe the way that we fix the, that we start to fix these things. And I think the machine is starting to rev back up is we're seeing the UAW is getting stronger by the minute. They're actually adding, even in the South, which was, I mean, that's unheard of to start to actually gel unions in the South.

We're starting to see that. We just saw non-competes are no longer a business practice. So these are things, and what did non-competes do? Well, they held an individual almost hostage in many cases because if I was in this industry, where the hell else would I go? They would just say that I'm, yeah, yes.

Sean Luitjens (17:38.71)
Yeah, after whatever you call it, three to five years of creating enough IP, you have to go back to start somewhere else, which I can't afford to do. So you're right. And I'm already, I'm already barely a livable way. I've just crawled above livable wage. You want me to go back down so that I can go to another industry? I can't do it.

Chad (17:51.224)

Yes, yes. So we have these things, and then we have the government also fighting for higher wages, right? So I think these are the start of actually starting to press up the individuals who are, again, we have more people in poverty today than we did 20 years ago. And our economy is booming. It's booming. You take a look at also profits, right? The profits, the margins since COVID.

And this is another kind of like immoral thing that happened with many companies is that they saw that there's an opportunity and they widen their margins. Oh, these people really need this. They're stuck at home. They're scared. There's a lot of fear. We can pump up the prices. Well, they pump the prices up. They didn't pay their people anymore. They pumped the prices up and they, the, the profit margins are bigger than they ever have been. Right. It's interesting because in countries like France, actually they're

in the grocery stores that some of these products are actually, it's pretty much, I can't remember the terminology that they were using, but to actually say they were overinflated from a price standpoint. And also some of them were taking products out of the bag at the same point, right? The size of the products in the bag, but the same size bag.

So it's like there are all these different ways that companies are trying to profiteer, number one, and number two, they're not paying their people with those wages, or with those profits. So I think that the government is definitely going to have to step in, stop the profiteering, number one and number two, start focusing on driving wages up. The hardest part around this is inflation, obviously. So there has to be an oversight and mechanism to ensure.

Chad (19:46.598)
that once inflation starts to happen, we don't have profiteering on top of that. And then it's just like this wage greedflation that we saw over the past three years.

Sean Luitjens (19:57.714)
Yeah, because if you move the bottom up, I mean, then, you know, the theory would be fine. We're going to pay you more. We're just going to pass the cost through. And profits have to go up. I know it's all intertwined with retirement plans and everything else, right? So if you cap off some of this, but again, the one that always came to me was one of the gas companies. Profits increased after COVID enough that every American, and I know their global company, could have been paid $7,000.

just on the difference, right? And I don't spend $7,000 in gasoline. So I know it wasn't me that was there. But the theory would be you'd move it up, but in theory, then they just move their pay up, etc. So the question to me has always been, do you legislate something that is a maximum ratio? And again, I'll play devil's advocate a little bit, that there's so many financial instruments

that then they'll figure a way around that. Like I said, my biggest pet peeve is always the short-term piece too, because I think that, you think from a worker standpoint, all those 700 workers for the one worker, they have to continue to work over time. If they're like, oh, and they get their 19 weeks, great. They still have to go within 19 weeks and find another job because they need a livable wage. The golden parachute piece where they leave

Chad (21:11.149)
Yes. Until they die.

Sean Luitjens (21:24.182)
they don't have to do that. And so they're not always in the long-term interest of the business. And I, to me, that would be a piece to try to somehow, I don't know if there's penalties, I don't know if you hold money in escrow, like when you make over X amount of money for a company that has that many humans involved, is there a way to somehow hold that back so that you can make sure you did the right thing for the overall business? I don't know, police is that, like.

Chad (21:35.865)

Sean Luitjens (21:52.438)
And this is where it gets all really intricate with how far do you let legislation go or do you let it be laissez faire in the stereo to cap, cause capitalism right now, this is basically, this is capitalism at its best or worst.

Chad (22:06.517)
Yeah, yeah, yeah. I've heard the term late stage capitalism a lot lately because of all of these problems. And they're all coming to a head because of the lack of guardrails. The boards that are being put together are basically just a bunch of buddies that you can pull on the board and pay so that you can do whatever you want, right? Comp package wise, et cetera, et cetera, et cetera. You take a look at the things that have been said over the years.

we need a small government. Well, we need a small, why do we need a small government? Because we don't want IRS agents and we don't want people providing oversight on how we do business, right? So that we can do these things. So we can pay our people over 40 years, 15%, and we're taking a 1200% rate hike or wage hike. At the end of the day,

I think it's incredibly smart if we take a look at ratios and this to me makes the most sense. The ratio of 30 times, okay, and again, this is pretty much the ratio that you can see all over the world except the further in the US. You take a look at the ratios of 30 times against your lowest paid employee.

What's that going to do for CEOs? They're gonna wanna get paid more. So what are they gonna do? They're gonna want to actually elevate what everybody else is getting paid. We have to attach their incentive to what their people's getting paid, their incentives, right? They're not aligned right now. That's the biggest issue. We are not aligned from the standpoint of the CEO doesn't give a shit if Jeffrey walks off the line tomorrow. Although...

because the UAW is starting to gain strength. If there are 700 Jeffreys or Janices who could walk off, oh shit, right? So there are many different layers that I think we could actually put in place that are already starting to come into place today. But yes, I think the ratio of what a CEO gets paid versus total comp versus what their lowest common denominator, what they would like to call

Chad (24:26.197)
American worker is getting paid that is going to literally we talk about right rising all boats It hasn't happened for the last 40 years something like this could actually make that happen

Sean Luitjens (24:38.162)
And do you think that then just has to become legislative? Like I just don't know, how do you make it like fundamentally who, where, you know, it's actually the math. Like I said, I think people will still, you know, then you've got to deal with the stock issue, but we'll deal with that later. Like, you know, cause then, you know, do you have to do a lot, you know, a 30th of every share that you take to the employees, like something, something where basically all the rewards elements.

Chad (24:44.705)
Yeah, yeah, because boards are not gonna do it.

Chad (25:06.617)
Mm-hmm. Right.

Sean Luitjens (25:06.754)
that are available and have that buoy, those have to be available to all if you're going to have it.

I mean, it is such a fascinating problem, I think. And the numbers are staggering.

Chad (25:18.717)
Yeah, well, and it's one that we've created. And to be able to say, and I always believe that complexity was created. It didn't just happen, it was created. You take a look at legislation that's 1200 pages, right? Which could be 120, easily. But they wanna make it more complex, right? This is not just a corporate America issue. This is a fricking governmental issue as well. It's a money issue, let's just say that.

We like complex why because guys like you and I or the normal American They won't pay attention if it's complex. They just fall asleep After you know 20 minutes of droning on and on and on versus keep it simple stupid and You know again 120 page legislation versus 1200 pages

Sean Luitjens (26:11.118)
So, kind of end with how long do you think it would take to shake out? If we're starting to hit this beginning of this, a couple things coming together, I do think it's also going to help with the, you know, like you said, there's several things coming together. The new FLSA piece around hourly workers, I think that's going to help, right? No free overtime. They're going to have to like figure that out too. So they're starting to put some guardrails in. They're all kind of coming together. Do you see that continuing to shake out over four or five years?

Chad (26:41.013)
not four or five years. It's taken 40 years to break our system, this bad. Again, from a comp standpoint, from a consumer, from an employee standpoint, from a fairness standpoint, it's taken 40 years. This can't happen over four to five years. And the thing about Americans is that we want things to change now, which is a problem, right? It's definitely gonna be a problem in trying to fix this.

What we have to do is we have to have leadership that gets in there that points out all of these things that are happening in the favor of 99.9% of America. And somebody has to plot that out as a vision and we have to stay on that track. That's going to be the hardest thing, especially with politics as we know it today.

Sean Luitjens (27:31.67)
Yeah, I was going to say actually, you know, kind of a rough year to kind of figure out how that's all going to happen because where the trickle down the money sits and everything else and that that's a both sides of the aisle problem fundamentally, I think, without getting into politics like how you fix that. And this is a particularly bad year for that. So the question.

Chad (27:42.849)

Chad (27:49.153)
Yeah, and we can't fix any of that until you get the money out of, we're talking about getting the money from the CEOs to the people or at least, you know, a fair distribution. We need to get the money out of politics so we can actually have real decisions that are good for the people made instead of decisions that are good for, you know, Citizens United, the corporations.

Sean Luitjens (28:11.41)
That's a whole another couple hours. So I don't know if it's the same topic or not, because I know that you're passionate about this, but I usually kind of start to close with, if you could automatically, which is the highly, you know me, when I was in dev, that's a dev term I like to have. Mostly what I told salespeople would always tell me, can you make this happen automatically? Fix one thing in HR. Been around with your kind of more TA bent, I would call it. What would that be?

Chad (28:13.153)
That's not fun.

Chad (28:41.185)
Yeah, I mean, you know, we're doing a lot in, you know, the talent acquisition and talent management space. So all the way through, I really, really would hope and would want to change the HR's vantage point of themselves as being a cost center because they're not a cost center. They are the revenue center of every organization. And again, being able to acquire talent,

and then also manage and grow talent within your organization so that they're not spitting out the other end of the organization. You bring them in and then they're gone, but they stay. And we know how to create that loyalty and that's done through growth and having great leaders within the organization. If HR would understand, they are not a cost center. They are the beginning, the impetus of every piece of revenue that every organization...

creates, then guess what? We actually, instead of begging and pleading for a seat at the table, we own the head seat at the table because the CEO can't even say that.

Sean Luitjens (29:52.706)
No, I agree. I think, yeah, the strategic piece of it, I wouldn't say it's the beginning. It's also just the middle and the end. Like, you know, all that ROI, the intellectual capital, and, you know, not, again, all these little things people don't think about. The rules changing on hourlies, the non-compete rule, I think, is interesting because now it's, you know, you've got to keep them there and keep them happy. So I think that's a good one.

Chad (29:59.414)

Chad (30:14.773)
Yeah, that's a great thing.

Sean Luitjens (30:17.986)
So dude, appreciate it. This is great. Always great catching up with you. I knew this was your soap box and we've had several coffees over it. So I wanted to just wax philosophical on it some more and it'll just keep popping up in the news because earnings will be out here for the first quarter pretty soon. And so, you know, whenever this one comes out, people start looking at earnings. It's kind of an interesting thing to dig in to, you know, scroll down to the 10K and take a look.

Chad (30:19.865)
Thanks, man.

Chad (30:38.766)
It is.

Chad (30:45.115)
Yeah, yeah, yeah. A lot of nerds are gonna be watching here soon. I can't wait.

Sean Luitjens (30:49.97)
Yeah, me neither. All right, thanks man.

Chad (30:52.269)
Thank you, man. Appreciate you having me on.

Click to get a free demo of Visier Smart Compensation today.

Back to blog
Back to blog

Recommended resources

All resources

Get the Outsmart newsletter

You can unsubscribe at any time. For more information, check out Visier's Privacy Statement.