The compensation gap

A local preview of the SEC-ordered CEO-to-worker ratio

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In an era where pay to workers has hardly budged, the compensation paid to chief executives has soared.

CEOs in 1965 earned about 20 times the typical worker. By 2013 CEOS earned about 300 times that amount, according to the Economic Policy Institute, a liberal leaning advocacy group. It sounds too high to me, but the MICKEY HIRTEN broader point addresses a piece of the income inequality gap that is real and by many accounts worsening.

How real will be obvious in 2017 when as required by the Securities and Exchange Commission companies must disclose the gap between the pay of the big boss and a company´s rank-and-file workers. It´s a complicated calculation and won´t mean much in the Lansing area. There are few publicly traded companies based in mid Michigan, and by national standards, annual pay for local chief executives is modest — just $147,440, according to the May report from the Bureau of Labor Statistics. It put the average worker´s pay in May at $45,260.

But there are some well-compensated CEOs, particularly at area hospitals and other health related organizations. Compensation for CEOs included base pay, retirement benefits, stock options and other sweeteners.

Topping the executive compensation chart at $8.8 million — 180 times the average worker — is Philip Incarnati, president/CEO of McLaren Health Care, which operates two of its 12 hospitals in Lansing. His pay was listed in the organization´s 2013 Form 990, filed with the IRS. (These and the BLS report are the source of compensation numbers unless noted.) Hospitals have a wide range of average workers, at one extreme near the minimum wage, at the other end, highly compensated doctors. Yet even measured against medical professional means wages in the Lansing area, the McLaren CEO gap is huge. Incarnati´s compensation is 51 times the mean pay for physicians and surgeons ($172,800), 39 times that of obstetricians and gynecologists ($225,310), and 36 times that of anesthesiologists ($244,700).

Closer to home, the gap shrinks. Sparrow Hospital CEO Dennis Swan´s compensation for 2013 was $1.4 million – about 30 times the average workers´ pay and six to eight times more than the three physician categories. Pay isn´t bad for Sparrow´s No. 2 exec, Joe Ruth. His compensation was listed at $711,519 — 15 times the average. And the gap really shrinks at Hayes Green Beach in Charlotte, where CEO Matthew Rush´s compensation was $430,548, just nine times the average worker.

But there are other examples of ample health-related pay. At the Michigan Health and Hospital Association, which defines its mission as promoting the interest of the health care industry, CEO Spencer Johnson´s compensation was $1.2 million, 25 times the average. He retired in June.

Then there is Okemos-based Delta Dental Plan of Michigan, essentially a multi-state health insurance provider, where CEO Laura Czelada´s 2013 compensation was $3.9 million — 83 times the average worker and 25 times more than the average $155,720 pay of an area dentist.

The two publicly traded companies in the area — Spartan Motors and Neogen Corp. — both list CEO salaries in their 2014 proxy statements, as reported by Salary.com. Compensation for Spartan´s former CEO, John Sztykiel, was $554,928 — 12 times the average worker. At Neogen, which develops and markets food and animal safety products, the compensation package for CEO James L. Herbert was $1.4 million, 30 times the region worker pay rate.

Consumers Energy, which is based in Jackson but has a large presence in the area, paid CEO John G. Russell $6.2 million in total compensation, 130 times the average worker´s pay.

Michigan State University, a nonprofit, except for its sports program, is one of the rare institutions where the CEO, Lou Anna Simon isn´t the highest paid employee. Her pay was raised to $850,000 a year in 2014 — 18 times the average. But it´s in the Athletic Department where compensation dwarfs Simon´s. The university´s AD Mark Hollis will make $917,000 according to the Detroit Free Press — 18 times the average worker. Football coach Mark Dantonio´s 2015 compensation will be $5.6 million — 180 times the average; basketball coach Tom Izzo´s compensation is set at $4 million, 85 times the average. Both were reported by USA TODAY.

In the latest IRS filing by Thomas M. Cooley Law School (now known as Western Michigan University Cooley Law School), CEO Don LeDuc´s compensation was $675,626, 14 times average worker pay and seven times the $98,320 average of lawyers in the area.

Finally, at Peckham Vocational Industries Inc., one of the area´s most prominent nonprofits, CEO Mitchell Tomlinson´s latest reported compensation package was $505,770, 11 times the average.

There are, of course, many factors that determine CEO pay: the size of the organization, the location, comparable pay in the industry and the profits their companies generate.

The new SEC rule was opposed by the two Republicans on the commission and the U.S. Chamber of Commerce, which said it was added to the Dodd-Frank as a favor to union lobbyists. Probably, but why is that a problem? The measure is unlikely to influence investment decisions. Certainly institutional investors have the savvy to analyze CEO compensation.

But it will provide some stark reading and recognition of income inequality as a political issue, which has blossomed since Dodd-Frank was passed in 2010.

And considering the Chamber of Commerce´s disdain for workers — it´s against the minimum wage, a living wage, changes in laws and more — its opposition to the new reporting requirement can be seen as an endorsement. At least for those of us who aren´t CEOs.

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