In the past four decades, CEO pay has grown by 940.3% while average worker pay has increased by only 11.9%
A new study by the Economic Policy Institute revealed CEO compensation escalated in the 1990s, peaked in 2000, and has fluctuated since with the recession and smaller booms.
CEO pay, which averaged $17.2 million in the top 350 firms last year, is higher than the typical worker compensation by a ratio of 278-to-1. Yet in 1965 the ration was only 20-to-1 and in 1989 it was 58-to-1. CEOs are making even more than other earners in the top 0.1% – five times as much.
In the same time period – 1978 to 2018 – the study reveals that stock market growth was only 706.7%, wage growth of very high earners was 339.2%, and the typical worker wage growth was just 11.9%
“Exorbitant CEO pay is a major contributor to rising inequality that we could safely do away with,” summarizes the authors of the study. CEOs are getting more because of their power to set pay, not because they are increasing productivity or possess specific, high-demand skills. This escalation of CEO compensation, and of executive compensation more generally, has fueled the growth of top 1.0% and top 0.1% incomes, leaving less of the fruits of economic growth for ordinary workers and widening the gap between very high earners and the bottom 90%.”
Authors of the study have some suggestions on how to limit executive-pay growth, namely with fairer taxes.
“In our view, the CEO compensation and escalation is not reflective of some big gaining of skills or improved contribution to their firm’s performance or the economy,” said co-author Lawrence Mishel. “That means we could tax away half of what they take in, and I think the economy would be the same size.”
Total CEO pay includes salary, bonuses, stock awards, and long-term incentive payouts. Stock options make up the majority of CEP pay at large companies.
“CEOs of large firms are setting the pattern for this very large group of people at the very top, and growth of CEO compensation has helped drive up the pay of the top 1% and 0.1% of all workers,” Mishel said.
Some of the authors of the solution of the study suggest are reinstating higher marginal income tax rates at the very top; setting corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation; establishing a luxury tax on compensation such that for every dollar in compensation over a set cap, a firm must pay a dollar in taxes; reforming corporate governance to give other stakeholders better tools to exercise countervailing power against CEOs’ pay demands; and allowing greater use of “say on pay,” which allows a firm’s shareholders to vote on top executives’ compensation.
“The economy would suffer no harm if CEOs were paid less (or taxed more),” concluded the study.