Trumped-Up Math and CEO Comp Study

05/25/2016 04:25 pm ET Updated May 26, 2017

The AP's CEO compensation study released this morning shows the median CEO pay RAISE (okay, not their pay...just this year's raise) was $468,449; more than 10 times a typical worker's ANNUAL salary.

Grab your calculator, since this seems like a "Ripley's Believe It Or Not!" and it may be too difficult to believe your eyes just reading it. You may need to actually press the calculator keys; $809 (the average US worker's weekly salary in 2015) times 52, equals $42,068. Okay, now multiply that by 10 to get $420,680, which is actually lower than the $468,449 2015 median CEO pay raise!

Now, to add insult to these incendiary facts, of these 341 CEOs' companies, their median stock returned ZERO last year!

"Anger is high" writes AP's Stan Choe. At the risk of being pedantic, the vagary and outright obscurity of the formulas for CEO pay packages has enabled obscene compensation levels.

Speaking of vagary, Presidential candidate Donald Trump continues to deny Americans a look at his tax returns, which seemingly we are deserving of, to assess his choices of how much compensation he receives. Yet his tax returns would also prove valuable in allowing us to juxtapose his campaign assertions with his prior years' IRS attestations, would they not?

My dad always told us kids, "there's no shame in the truth; tell and show it, always." Could the Donald's assertions, or the math on his returns, also be Trumped-Up?

And, until and unless the average worker begins to channel their anger at Wall Street's 'customs' of overpaying certainly for underperformance (and even good performance) we'll not see relief anytime soon.

The SEC has levied that starting in 2017 companies must disclose the ratio of their CEO pay compared with their average employee's pay. I'm banking that CEOs and their golf and yachting partners (ahem! Boards of Directors) are scheming to somehow tweak new under-the-radar compensation models.

The average American allegedly presumes that CEO compensation is $1 million dollars a year! What level will anger rise to when they read that a CEO's average compensation was $10.8 million last year? After all, what's a zero among friends, right?

In 2015, Expedia's CEO made $94.6 million; Viacom's CEO made $54.1 million. Expedia's stock price increased 47 percent; Viacom's lost 42 percent. Even with Expedia's price increase, Sarah Gavin, their spokeswoman exudes, "This is a great example of a pay-for-performance CEO compensation plan." Really, Sarah? Has the concept of 'limit' or 'semi-reasonable' ever occurred to you, or Expedia's and other S&P 500 companies' Boards?

And not that I believe CEO compensation should be that heavily pegged to stock price appreciation, since I've witnessed the gutting of companies' workforces, closing of plants, degradation of customer service, all in the name of pushing the quarterly numbers to analysts each quarter-end to buy, I mean, otherwise influence, ratings in hopes of their stock's price appreciation.

What's the answer? How can average Americans simultaneously feel this rage and yet, personally not continue to feel left on the sidelines of the economic recovery since 2008?

Rather than being shell-shocked about the short-term volatility of the stock market, we individual investors need to apportion whatever monies we're investing for 10 years or more; like many of our retirements, into stocks/stock mutual funds/stock ETFs, or my preference, institutional passive/Index-like mutual funds, whose expenses are razor thin and whose diversification tamps down concentrated stock risk(s).

For those monies withdrawn in 2008-9 panic and never since invested, we need a strategy of 'getting back into' the stock market. And for those monies invested in the stock market whose values are skewed differently than our original intended asset mix, we need to rebalance back to the most effective Asset Allocation. Asset allocation is industry speak for the mix between stocks -- large and small, US and foreign -- and bonds -- US Gov't insured and corporate, taxable or municipal.

I well realize the counter-intuitive rebalancing exercise -- selling the excess of our 'winner' asset classes to buy into the temporarily lower priced 'losing' asset classes. Yet that's following the age-old mantra of "buy low, sell high" right? Right.

Yet if you haven't been able to pull these rebalancing triggers in the past, it may well signal the time to engage a Fee-Only CFP® Practitioner. We're not emotional about investments. Ultimately it's about the math of the Asset Allocation percentages, NOT trumped-up CEO compensation math.

Yes, the CEO pay is unscrupulous; downright greed gone amok.

However, with more stock/stock mutual fund shareholders voting and voicing their opposition to Boards of Directors' CEO pay recommendations, and with taking individual action investing our own portfolios, perhaps we can accrue some tidy gains while we work for, and await, some semblance of corporate compensation justice going forward.

For more information on What Wall Street Won't Tell You, visit DebraLMorrison.com.