CEOs are overpaid, profit-hungry, shareholder-beholden, monsters of society….Right? Right? Right?
But, have you ever thought about how a CEO might tackle America’s budget issues?
Certainly, a company with America’s track record would have gone bankrupt years ago. Shareholders would have expected that the company would have brought in a brilliant CEO mind to engineer a turnaround by now…But, what would that CEO do if they had to turn this ship around?
Here is the answer, brought to you straight from CEO 101:
1) Cut fixed costs
2) Increase prices
3) Institute a poison pill
4) Sell off unprofitable assets
5) Pay down debt, increase cash flow
1) Cut Fixed Costs
This is a must-have in any business turnaround. You must first cut down our fixed costs, so that when you manage to increase revenue, the effect is exponential. In order to cut costs, America would need to reduce its federal salaries, and entitlement programs immediately. Programs like Social Security, Medicare, Welfare, along with federal government salaries, account for around 60% of the annual budget. By cutting these programs/salaries by 15%, the United States would save around $315 billion/year.
2) Increase Prices
The Federal Government collects approximately $2.77 Trillion in tax revenue each year. If the Federal Government were to increase tax collections by 15%, they would net an additional $415 Billion/year. One could spend years arguing the best way to administer this tax increase, but let’s assume that since over 50% of people don’t pay federal income tax, and 10% of people can afford to pay more, that we find some solution that makes it so everyone can survive while letting the government keep its head above water.
3) Institute a “Poison Pill”
Many Corporations institute poison pill initiatives, to ward off competitors with evil agendas. The United States should do the same. Instead of Obama’s plan, which decimates the military, we should look to strengthen the military while cutting in all other areas. By cutting the Nuclear Arsenal, while cutting some new weapons systems, and reforming command, support, and infrastructure, the armed forces could save approximately $500 Billion over the next ten years, or $50 Billion/year. Today, we spend about $150 Billion/year on salaries for around 1.4 million soldiers. If we reinvested the $50 Billion/year into more soldiers, we would be sitting at over 2 million soldiers, which would put us on par with China as the world’s largest military. In one budgetary move, we could provide employment to 800,000 Americans, and put ourselves back on the map as the world’s largest military in a revenue-neutral move.
4) Sell off unprofitable assets & defund unprofitable business units
The Federal Government owns approximately 650 million acres of land, appraised at around $2000/acre, equals a sum of $1.3 Trillion. If the government were to unload the worst 33% of the land, it would net around $400 Billion, along with lowering expenses significantly.
We spend over $70 Billion/year in foreign aid, $17 Billion/year on NASA, $30 Billion/year in agriculture subsidies, $48 Billion/year on the department of education, and $13 Billion/year for the IRS. That would total about $175 Billion/year.
5) Pay Down Debt
We spend about $415 Billion/year in interest on your national debt. By making the aforementioned cuts, we would save approximately $900 Billion/year. This would allow us to pay off around $350 Billion of National Debt each year, which would account for an additional $10 Billion/year in interest expense.
Where would we be if the Government took these steps?
Today, we stand at $17.75 Trillion in debt. If the Federal Government took these steps, we would reduce the debt by $360 Billion/year. Even with this dramatic effort, we would still likely not be debt-free for approximately 50 years.
Clearly, it is time that we bring in a “fixer” who can set this country on the right path. While 50 years is a long time to recover, it is better than the trajectory that we are on. There are many things that can speed up the recovery, such as entitlement reform/dismissal, or temporary tax spikes, but the overall goal needs to be having a smaller central Government with less taxes and less fixed costs going forward.
I, for one, get pretty sick of the people telling everyone that CEOs are overpaid. Salaries are a function of market pressures (supply and demand) that forces companies to pay CEOs in line with what the market demands. For example, why would your company pay a CEO 11 million dollars a year when they could hire someone of equal talent for 2 million dollars? They wouldn’t. The Board of Directors is usually made up of industry experts, other CEOs, directors of other companies, and former executives. This Board of directors determines the CEO’s salary, and they are unlikely to overpay for someone if there are better options available at lower prices.
That was the generic answer. The real answer is that the CEO position is extremely demanding and there are only a handful of people who can handle it within any organization. You need to be excellent at consensus building, visionary thinking, strategic execution, human resources, investment community relations, and you have to be able to make huge decisions that affect thousands of people without letting the personal side affect you to the point of making bad/late decisions. It is a stressful position that very few are ever elevated to, and very few could handle if they were. You have little/no job security, and your fate lies with the company (which often can unravel based on lower-level management decisions that have nothing to do with you, though it is your responsibility regardless.It is necessary to pay the CEO a large sum to take on a job that is so unbelievably demanding.
Also, most CEO’s have a salary in the low millions (or less), and the majority of their huge paydays come from stock options that are only valuable if they keep the company moving in the right direction.
In my humble opinion, most CEOs are worth the money, and many CEOs are worth considerably more, as their resepective companies would be in vastly different positions without them in their leadership position.
Good luck out there!
Please follow this conversation on quora.com: http://www.quora.com/Why-are-CEOs-paid-so-much/answer/Todd-Hagopian