The Cost of Being Rich

With all the (deserved) fuss lately over executive compensation, I started thinking -- "What does it really cost to be rich in America?". I'm not talking about Bill Gates rich, but lets just say the upper .1% or so.

Without being all scientific about it, I made some assumptions about what would put a person in that class. I think you'll all agree that these numbers would make a person quite comfortable and certainly in the upper echelon of how people live in the US:

• 1 primary residence ($2.5 million) and 1 vacation residence ($1.5 million)
• 2 kids at the best colleges ($50,000 each annually) and 2 kids at home
• 2 $100,000 cars and 2 $75,000 cars
• $15,000 per month for entertainment, plus $20,000 per month for club fees
• $15,000 per month for clothes
• 4 vacations per year at $25,000 each
• We'll even assume they're good people and give $100,000 per year to charity
• Plus other living expenses like utilities, insurance, groceries, and non-catastrophic medical coverage

This quite lavish lifestyle costs about $2 million per year. Add in taxes and we'll call it $3 million. Throw in another $500,000 for savings and investments. That's $3.5 million per year.

In 2007, the average compensation for a Fortune 500 CEO was $10.5 million. $7 million more than necessary to achieve the high standard of living above. A total of $3.5 billion in excess just across this group of CEO's. Enough to pay a $100,000 salary plus benefits to 25,000 people.

So someone out there please explain to me -- why would anyone need more than the lifestyle I have described above? Do these company's Boards of Directors really think that the excess they are paying their CEO is truly worth the productivity of additional workers? Wouldn't even these CEO's agree that their company could be more productive and provide higher value to their stockholders with more people providing their products/services?

Let me cite one glaring example. According to Forbes, John Chambers, CEO of Cisco, made $55 million in 2008. Using the model above, that is $51.5 million in excess, or the equivalent of about 370 workers. Cisco just laid off 3000 people.

The balance is way off.