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The American Dream – Still Alive or Slipping Away?

Strategy Matters[su_dropcap style=”flat”]W[/su_dropcap]HAT ARE WE worth on the job market? Most will agree that it is the supply of qualified individuals and demand to hire / retain that factor into an employee’s compensation. Performance plays a key role as well in shaping pay, bonus, and stock incentives. Yet it is the widening pay gap between the “haves and have nots” that deserves attention. For many, this widening ap is a threat to attaining the American dream – that is, the belief that hard work and the freedom to pursue your destiny can achieve success and provide better opportunity for your children. It is estimated that living the American dream would cost the average family of four about $US 130,000 a year. That computes to about only 1 in 8 U.S. households, according to the USA Today.

While the U.S. economy post 2008 is recovering for some Americans, many are still experiencing a sluggish job market and low wages. Perhaps the most obvious anomaly among wage earners relative to other roles is that of the CEO, where the average compensations was $US 15.2M in 2013 among the top 350 U.S. firms (Economic Policy Institute, 2014). While a good CEO can enable a company to be wildly successful (e.g., Tim Cook at Apple), this is often not the case among other highly paid executives, whose companies lag in performance.

From 1978 to 2013, CEO compensation, inflation adjusted, increased 937%, a rise more than double the stock market growth and substantially greater than the painfully slow 10.2% growth in a typical worker’s compensation over the same period.”

Put differently, the ratio between what a CEO was paid compared to the average worker was 29.9 to 1 and 351.3 to 1 in 1978 and 2007, respectively. The ratio dropped to 295.9 to 1 in 2013. That means that the CEO was paid almost 300 times as much as the average employee in 2013. No doubt CEOs are well into the American dream while the average middle class worker is falling further and further behind. While a good CEO may be a good investment for shareholders, it nonetheless calls to question the value in which our society places on the American dream. Do we want to keep this dream as an attainable goal for the average worker? Does this dream among the masses have a value (or cost) that needs to be addressed in intelligent discussion?

I argue that the American dream is still alive, but fewer can afford it. As the middle class continues to get squeezed, so too does the realization that our children will experience this same dream. It is more important than ever to keep the American dream alive in the minds of our younger generation enrolled in school and entering the workforce. It is what pushes many to work hard and succeed. Yet, what can be done to create greater parity among professions in order to keep the American dream within reach?

Why are many highly-skilled white and blue collar professionals paid so little compared to a handful of executives who run the company? Is a CEO really worth 300x as much as the average worker? Clearly effective leadership deserves to be compensated, but how much is too much? Will Board of Directors have greater say in influencing executive compensation levels? What about the shareholders? Will U.S. states step up efforts to tax highly paid executives relative to company performance or the average employee rate, as California is currently considering? When you consider that it is the middle class (not the top 1%) that fuels our economy, it demands attention to the shrinking middle class in our society. In comparison, China’s middle class is soaring and is expected to reach 630M by 2025 (McKinsey & Company, 2013). Clearly the U.S. economy is not as strong as it used to be; we need to do more to keep the American dream alive and within reach of many in the middle class. I fear that the American dream may become a myth by 2025 if something significant is not done to keep it alive.

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Dr. Robert Bornhofen
Dr. Robert Bornhofenhttp://bornhofen.weebly.com/
Dr. Robert Bornhofen is a scholar-practitioner with over 25 years of experience. As a scholar, he currently teaches strategy at Cornell University and the University of Maryland Global Campus. As a practitioner, his corporate career includes a variety of leadership roles at Fortune 500 companies IBM, Delta Air Lines, & Citibank. Dr. Bornhofen earned his Doctorate degree at the University of Maryland, a Master of Science degree from Colorado State University, and a Bachelor of Science degree from the University of Minnesota. As a conference speaker, Dr. Bornhofen presents at various industry forums. His current focus is on innovation within the water utility sector. As a researcher and author, Dr. Bornhofen published over 20 papers on topics related to innovation strategy. Passionate about change, Dr. Bornhofen embraces the creative spirit that goes into problem-solving, where smart people come together to transform great ideas into extraordinary outcomes. His articles reflect this passion and desire for continuous learning.

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2 CONVERSATIONS

  1. Brian, you ask an enticing question. I think there is a relationship. Most low to middle income earners have not seen an increase in wages for a very long time. If laid off and a long-time unemployed, the chances of finding work at or above your previous wage rate is probably zero. In most instances, the new job would be part-time or half your original pay rate. Compounding the issue is while the real wage rates continue to fall costs of goods and services have increased exponentially, making the goal of achieving the American dream exactly what it is – a dream.

    In the meantime, chief executive officers (CEO) pay continues to soar at an alarming rate. As Robert rightfully argued, in 2013 alone, it is estimated that CEO compensation increased 937%. While the average workers wages have decreased considerately even when productivity has increased. By productivity, I am suggesting a rate of the total goods and services the average worker produces in an hour of work.

    The good news and what is now trending is that companies are now tying CEO pay to performance. CEOs are no longer given freebees as was the case earlier (See: http://online.wsj.com/news/articles/SB114049621665278830)

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