“Top” CEOs Make 300 Times More than Average Workers: EPI

“Top” CEOs Make 300 Times More than Average Workers: EPI

According to the Economic Policy Institute, the CEOs of the largest U.S. firms are paid over three times more than they were two decades ago and at least 10 times more than 30 years ago.

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As EPI analysts Lawrence Mishel and Alyssa Davis point out, these extraordinary CEO pay increases have had “spillover effects” in pulling up the pay of other senior execs, who constitute a larger group than most are aware of. Therefore, the rapid growth in CEO pay and executive compensation overall was a major factor behind the doubling of the income share of the top 1% and top 0.1% of U.S. households from 1979 to 2007 (Bivens and Mishel 2013; Bakija, Cole, and Heim 2012).

Key points in EPI report on CEO pay

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Compensation for CEOs grown much faster than that of other highly paid workers (those earning more than 99.9 percent of wage earners) for the last 30 years. The EPI report highlights that CEO compensation in 2013 was 5.84 times greater than the pay of the top 0.1% of wage earners, a ratio 2.66 points higher than the 3.18 ratio seen from 1947–1979.

Furthermore, over the last three decades, CEO compensation has moved up more relative to the pay of other very-high-wage earners than the wages of college graduates increased compared to the wages of high school graduates.

The fact that CEO pay grew far faster than pay of the top 0.1% of wage earners indicates that CEO compensation growth does not simply reflect the increased value of highly paid professionals in a competitive race for skills, but rather the power of CEOs to extract concessions regardless of performance.

Most importantly, the EPI report notes: “Consequently, if CEOs earned less or were taxed more, there would be no adverse impact on output or employment.”

CEO pay correlates to stock market prices

Also of interest, Mishel and Davis note that CEO compensation very closely matches the ups and downs of the stock market, which casts serious  doubts on any explanation of high CEO pay that claims it is justified because of the individual productivity of executives or other reasons. CEO compensation typically grows strongly when the overall stock market rises and individual firms’ stock values rise along with it (Figure A).

Keep in mind that this is a market-wide phenomenon, and not a matter of improved performance of individual firms. Moreover, most CEO pay packages let pay to move up whenever the firm’s stock value rises, but CEOs can cash out stock options whether or not the rise in the firm’s stock value was exceptional relative to comparable firms. Of note, from 1978 to 2014, CEO compensation increased about 997%, an increase nearly twice as big as the increase in the stock market and orders of magnitude bigger greater than the measly 10.9% growth in the average worker’s compensation during that 36-year period.

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