The ratio of CEO pay to workers’ pay was 295.9-to-1 last year, according to a new analysis from the Economic Policy Institute (EPI).
That ratio is down from a peak of 383.4-to-1 in 2000 but is far higher than the historical norm. The ratio was just 20-to-1 in 1965 and 29.9-to-1 in 1978.
EPI’s data measure CEO compensation at the 350 biggest American public companies in a given year, which includes base salary, bonuses, restricted stock grants, long-term incentive payouts, and any stock options the executives exercised. The researchers then compared that compensation to the annual pay for workers in a given industry, given that data on workers’ pay for individual companies isn’t available, and averaged the ratio across all the companies. The analysis excluded Facebook, it notes, because that the company represents such an outlier by paying CEO Mark Zuckerberg $24.8 million. If Facebook were included, the overall CEO-to-worker ratio would have been 510.7-to-1.
In all, average CEO compensation last year was $15.2 million, an increase of 21.7 percent since 2010. Workers fared much worse. Compensation for private-sector workers fell 1.3 percent in that time and is still at its 2009 level. That contrast continues a long-standing trend: CEO compensation, adjusted for inflation, rose 937 percent between 1978 and 2013, which EPI notes is more than double the growth of the stock market in that time. Workers, on the other hand, got just a 10.2 percent raise.
There isn’t just inequality between CEOs and workers, however. EPI notes that chief executive pay is growing faster than pay for the 1 percent. In 2012, CEO compensation was 4.75 times higher than for the top 0.1 percent of wage earners. That’s an increase from the 2.68 ratio in 1989, “a rise (2.07) equal to the pay of more than two very high earners,” the report notes. It’s also up from the 3.25 average that held between 1947 and 1979.
“That CEO pay grew far faster than pay of the top 0.1 percent of wage earners indicates that CEO compensation growth does not simply reflect the increased market value of highly paid professionals in a competitive mark for skills,” the authors write, “but reflects the presence of substantial rents embedded in executive pay.” In other words, it doesn’t appear that CEOs are paid more because companies in general have to pay an arm and a leg to attract talent at the very top, but that executives are rigging pay in their favor.
Indeed, while companies often tout the fact that they tie CEO pay to company performance, executives routinely game the system such that they will always surpass the targets. That’s how Walmart US CEO William Simon got his bonus last year despite missing the sales growth target. Many executives who were lavishly rewarded were clearly flat out incompetent. Of the best paid CEOs of the past 20 years, nearly four in ten have been people who were fired, caught committing fraud, or oversaw bailouts of their companies.
Workers, for their part, have experienced a lost decade of wage growth despite consistently increasing productivity, another sign that hard work isn’t necessarily tied to lavish pay.
Meanwhile, we still have to rely on averages like EPI’s because companies are fighting a new requirement that corporations calculate and disclose the ratio of their CEO’s pay to their average worker’s pay that was passed as part of the 2010 Dodd-Frank financial reform bill. The Chamber of Commerce called the requirement “egregious” and said it would be too costly to track. Yet corporate profits have more than rebounded from the recession and hit a record high last year.