Three weeks ago the CEO’s of GM, Ford and Chrysler flew in their corporate jets to the Senate hearings in Washington DC. The outrage of politicians and the media was predictable. It costs about $8,000 to fly a corporate jet from Detroit to DC. It costs only $600 for a commercial flight. How dare these pompous executives fly in private jets when they are asking the taxpayers to give them billions of dollars!
Image is everything I guess, so last week all three CEO’s drove hybrid and flex fuel cars to Washington. The one-way drive takes about 10 hours. During the Senate hearings these CEO’s were asked whether or not they drove to Washington, what kind of car they drove, and if they had any passengers. They were also asked if they were going to drive back to Detroit or fly. Each CEO indicated that he had driven to Washington and was going to drive back to Detroit. That’s just what the media and the Senate were looking for; frugal CEO’s who don’t waste money and run a tight ship! At least that’s how it was portrayed.
Of course, the real purpose of these hearings was to determine if Ford, GM and Chrysler had submitted suitable plans to indicate that they were on their way to running “viable” businesses (Pelosi just loves the word “viable”). The irony is that by driving to Washington instead of taking their corporate jets, all three companies wasted money!
Last year Ford’s CEO got a total compensation of $21.7 million dollars. Chrysler’s CEO salary was not disclosed because it is a privately held company. The CEO of General Motors got $14.4 million. Averaging the salaries of the Ford and GM CEO’s, we get $18 million per CEO each year. If a person works a 40 hour week, he will work approximately 2000 hours a year. Let’s say that these highly paid CEO’s work 60 hour weeks, so they work 3000 hours a year. At an average salary of $18 million a year, working 3,000 hours a year, these guys make $6,000 per hour. That’s a lot of money, but like it or not, it is the true “market value” of their time.
Whenever one of these highly paid CEO’s is not at his desk working (say he’s waiting for an airplane, stuck in traffic, washing his hands in the men’s room, etc.) it costs the company $6,000 per hour in lost productivity. Given the extremely high value of their time, let’s compare the CEO’s cost of driving from Detroit to Washington, flying commercially (Northwest Airlines), and taking the corporate jet. Once we know the costs of all three alternatives, the cheapest option is obviously the choice that a “viable” company should make. After all, the Senate Finance Committee and Nancy Pelosi like “viability”.
Driving: Travel time 10 hours @ $6,000 per hour. Gas $100. Wear and tear on car: $150. Total cost of driving one way to Washington, DC = $60,250.
Flying Northwest Airlines: Two hour wait and security check at airport @ $6,000 per hour. Two hour flight @ $6,000 per hour. Plane ticket $600. Total cost of Flying commercially one way Detroit to Washington DC = $24,600.
Flying in Corporate Private Jet: Security and wait time at airport 15 minutes @ $6,000. Flying time 2 hours @$6000 per hour. Chartering a private Jet one way from Detroit to DC costs (including fuel, crew, and prorated aircraft costs) about $8,000 one way. At that rate, the total cost of taking the company jet one way to Washington DC = $21,500.
Add to this analysis the fact that on his corporate jet the CEO has a complete office with satellite telephone, faxes, email, etc. On the other hand, flying commercially he’s got to turn off his cell phone and is stuck in his seat with a laptop, unable to be very productive. If the CEO can be fully productive using the office inside the company jet, the cost of the trip is reduced by $12,000, so the real cost of taking the private jet is only $9,500.
If we use the emotional decision-making process of the Senate Finance Committee, the news media and Nancy Pelosi, next time these guys come to Washington they should ride donkeys with pots hanging on the sides to save money. Let’s see…that’s 23 days @ 12 hours a day @ $6,000 per hour, plus $50 donkey feed (which must be shared by the donkey and the greedy CEO)…that’s $1,656,050. Yeah! Now we’re getting there! That’s politically viable!
Nice article. I wish the non-believers in Free Market forces would spend less time spinning every world topic leftward, and instead learn more about why America became strong and what was laid out by our founding fathers in order achieve that standing. It sure seems like an uphill battle when their brainwashing attempts seem to resonate with so many (otherwise kind and intellectual) people. I’m not convinced on ‘global warming’. I do not agree with any of these bailouts. I am very concerned when I hear the Pres. Elect talk about all the new things he will implement to try to kickstart the economy. It is not the governments job. When FDR tried to kickstart the economy with the highly touted ‘new deal’ some economists believe that pro-longed and/or worsened the Great Depression. I agree. Gov’t should get out of the way and let the markets correct themselves and find their natural bottom. Bankruptcy is in place for a reason and if companies cannot make it, maybe their competition can buy up their assets and gain for the better. When the Government props up otherwise failing companies, it reduces the chance for the natural competition of these failing companies to fully gain (which in turn can create more jobs and better production…etc.). It makes too much sense. We need hope that America will come around and figure it out and we need another Reagan.
interesting read. I like the idea of grossly overpaid individuals working hard while on a privately chartered jet instead of sipping martinis and feeling up their personal hostess. You have quite the faith in corporate executives to show moral character.
CEOs (usually) deserve their pay. They aren’t grossly overpaid. No moral character is completely irrelevant.
I really appreciate your comment on my blog! Thanks for being a contributor!
Jonathan, I’m not a super wealthy man, but I know a few of them quite well. Believe me, even among CEO’s that make a mere $500,000 a year, very few of them would ever risk losing that kind of position and income by “feeling up a personal hostess.”
All it takes is one trip to the local newspaper by the “personal hostess” and the CEO is probably looking for a new job, and a new wife, not to mention the half of his personal wealth that disappeared in the divorce settlement!
There’s an old, unwritten rule of male infidelity and I’m sure any CEO making $20 million knows it well. It goes like this: “If you’re going to commit adultery, never mess around with a woman who has less to lose than you do.”
Hi Don. Your analysis of the costs incurred for executive travel were spot on.
Interestingly when Nancy Pelosi became Speaker of the House, she demanded access to a Boeing 757 (the same type aircraft the Vice President flies in) as the one normally used by the Speaker could not fly non-stop to her home to California. Hypocrisy reigns. (or governs in this case)
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