Median CEO pay rose to $10.5 million last year at America’s largest companies, according to a USA Today analysis that found a 13 percent jump in median compensation from 2012.
The newspaper looked at the 200 members of the S&P 500 that retained the same chief executive from 2012 to 2013. The big raises those top corporate officers scored as a group come primarily from stock market gains. The market’s strong year translated into gigantic wealth and compensation gains for scores of executives who were able to cash in years-old stock options that were worth far less when they were issued during or just after the Great Recession.
Those market gains meant little to nothing for the economic security of the vast majority of the country, however. Median 2013 earnings for the country’s nearly 105 million full-time workers were just $40,872, according to the newspaper, representing a 1.4 percent rise over 2012. That continues a trend of stagnant or even declining earning power for workers that began before the financial crisis and has worsened since.
The market’s role in driving economic inequality is hard to overstate. Last year’s stock gains made 20 billionaires richer by $81 billion, while raising the average retirement account balance to a record high level that is still alarmingly low given the scope of the looming $6 trillion retirement crisis. But because almost all of the investment products that gained from the market’s bullish year are owned by the richest 10 percent of Americans, those gains did nothing to stem the decline in worker earning power. While it is logical that investment market gains primarily benefit those wealthy enough to invest in the first place, the broader financial industry’s role in worsening economic stratification without providing much of a follow-on boost for working families is well established in economic research.
If sky-high CEO pay were closely correlated with company performance, then all of this might seem less unjust. Stock price gains theoretically reflect prudent corporate management, after all. But the traditional connection between executive pay and business outcomes is broken. A third of all CEOs who have appeared on the Wall Street Journal’s annual best-paid list over the past 20 years have either been bailed out by taxpayers, booted out of their jobs for poor performance, or busted for fraud. Executives routinely game the performance targets that determine their compensation, and even when they fail to meet established targets they usually get paid anyway. In one recent example of the phenomenon, bond market giant PIMCO paid CEO Bill Gross $200 million despite overseeing years of declining performance at the firm.
Efforts to curb runaway pay and restore its links to corporate performance, including by ending a taxpayer subsidy for corporate pay and by requiring companies to disclose the ratio between their top and median compensation levels, are ongoing. But in the meantime, the American middle class continues to fade from view. Economists see fewer and fewer middle-class families, and polls show that fewer and fewer people believe themselves to be part of the middle class.