President Barack Obama’s salary pales in comparison to the average CEO. But does the president really need a raise? The historical data says “yes,” but the potential big payoff for newer presidents says “probably not.”
In 2011, the average Fortune 500 company leader made $12 million a year. President Obama has a $400,000 annual salary, gets a $50,000 expense account, and a really cool house to live in. But he has to buy his own food in some cases.
The debate over presidential pay dates back to the Prohibition era, when people were shocked in 1930 when baseball star Babe Ruth was given a salary that paid more than President Herbert Hoover’s.
Ruth legendary response was, “So what? I had a better year than he did.”
President Obama’s compensation is above average compared with other world leaders, including the leaders of China, Russia, the United Kingdom, Mexico, and Germany. Many are not far behind, though, with compensation in the US$200,000 – $300,000 range. And a handful are paid much more; the leader of Singapore gets about US$1.7 million a year.
The U.S. Constitution outlines how the president can get a raise and lets Congress decide on the timing through legislation.
Article II, Section 1 says that “The President shall, at stated Times, receive for his Services, a Compensation, which shall neither be increased nor diminished during the Period for which he shall have been elected, and he shall not receive within that Period any other Emolument from the United States, or any of them.”
President Washington received a salary of $25,000 in 1789, which was a lot of money at the time. It’s difficult to estimate the current value; projections range from $300,000 to $4 million in current dollars (depending on the economic barometer). But Washington also had to cover most of his own expenses. Luckily, the father of our country was a wealthy landowner.
Since the time of President Washington, there have been five presidential pay raises, which were effective in the next presidential term after Congress passed them. For example, in January 1969, the outgoing president was Lyndon Johnson; the pay raise took effect when Richard Nixon became president.
Pay hikes came in 1873 ($50,000), 1909 ($75,000), 1949 ($100,000), 1969 ($200,000), and 2001 ($400,000).
The chief benefactors of those pay raises were the first presidents to receive them, since they weren’t as susceptible to inflation. So in current 2012 dollars, Ulysses S. Grant received $945,000 in 1873; William Howard Taft got a hefty $1.9 million in 1909; Harry S. Truman received $950,000 in 1949; and Richard Nixon got $1.2 million in 1969. President George W. Bush’s pay was not considerably higher due to inflation over the past decade. But he did see his pay double compared with President Bill Clinton’s salary in 2000.
Basically, because there is no cost-of-living adjustment, the presidents make less each year they are in office.
Contemporary presidents do have a big advantage over their predecessors when it comes to making money after they leave office, and that is where they’re more competitive with CEOs.
Until 1958, presidents didn’t receive a pension after leaving office. Today, a president receives an annual pension equal to the current salary of a Cabinet secretary (about $200,000 per year) when leaving the White House.
In a 2008 report, the Congressional Research Service said that the three former presidents at the time (Jimmy Carter, George H.W. Bush, and Clinton) were receiving between $518,000 and $1.1 million a year in benefits from taxpayers, including pensions, office space, transportation, and other expenses.
Presidents George W. Bush and Clinton also signed lucrative book contracts after leaving office.
Clinton, in particular, has made out well financially. He told CNN in 2010, “”I’ve never had any money until I got out of the White House. But I’ve done reasonably well since then.”
Clinton made $16 million by giving speeches soon after he left office in 2001. By 2010, the website 24/7 Wall Street estimated that Clinton’s net worth was $55 million, and he had made $125 million before taxes.
On the 2012 campaign trail, candidate Mitt Romney floated the idea of a compensation plan that would make the president and other politicians more like CEOs, using incentives.
“I wish we had that happen throughout government-where people recognized they are not going to get rewarded in substantial ways unless they are able to achieve the objectives that they were elected to carry out,” he said.
However, that could backfire on a president. For example, the CEO of Walmart, Mike Duke, makes about $17 million in total annual compensation. Walmart also had a $16 billion profit in 2011.
The federal government annual deficit for the same year was $1.3 trillion.
Source: NATIONAL CONSTITUTION CENTER