More Frugal than Expected: Senior ExecutivesPosted on June 13th, 2012
In my last blog, J.R. profiled his father-in-law who is the CEO of a major public corporation. He provided considerable evidence that his father-in-law is the millionaire next door type. Interestingly most senior corporate executives understate their wealth.
Thank you for your insightful profile. My research over the years has found that senior executives of public corporations are more likely to be of the balance sheet variety than they are of the income statement affluent type. Certainly there are CEOs who live in sprawling multimillion dollar mansions that look more like castles than homes. Yet these are in the minority. But the "freaks" in the data, the outliers, garner most of the headlines.
In Stop Acting Rich I mentioned that the median square feet of the primary home owned by the chief executive officers of the Standard and Poor's 500 firms was 5,600. From my own data, most of these homes are found in well-established, lovely neighborhoods near or in large metropolitan areas. Typically, they are 2-story, traditional homes built of brick and/or stone. These 2-story homes, then, have a footprint of approximately half their square footage [for example, 53' by 53'] which is hardly a mansion or a castle.
In Stop Acting Rich I asked:
Could it be that many of these CEOs do not feel the same need . . . as the [income statement affluent] to display their success and supposedly enhance their status via homes, cars, and accessories? Perhaps just being the head of a major corporation has a lot of status attached to it all by itself. We cannot count on the press to paint an accurate picture of how most achievers allocate their dollars, yet most achievers are very satisfied with their lives.
According to my national surveys, the typical senior corporate executive's home has 4 bedrooms and 3 1/2 baths. It is currently valued in the low 7 figures, that's twice what he originally paid for it.
In The Millionaire Mind, I stated that 80% of senior corporate executives has a net worth above the expectation given their age and income. Also, the ratio of balance sheet affluent to income statement affluent for senior executives is fully 4 to 1. What is particularly interesting is that most middle level executives, managers, directors and the like as a group are significantly more likely to be among the income statement affluent.
However those middle level executives who have had a history of productively transforming their own personal income into wealth more often than others end up being promoted to the senior level positions.
It depends on the area. Perhaps they are living in the area, where they simply could not afford to buy a bigger piece of land or a house.
Even if you have a few millions living among billionaires could be expensive..
Save more and subsequently have more chances to promote.....quite interesting....On June 13th, 2012, 1:34 PM, Ben said:
To extrapolate a bit on your last point, I wonder if one of the major drivers of the high correlation of high personal wealth with climbing the corporate ladder is their acute understanding of a balance sheet and its implications.
For example, if one thoroughly grasps the concept of spending less than they earn and accumulating personal wealth, then it isn't difficult to see how that same person wound also excel at applying that concept to the business world where revenue minus expenses equals profits (allowing for increased retained earnings, re-investment or dividends). More profits equals more promotions, eventually resulting in a senior level position.
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