Data from the latest study by the Economic Policy Institute (EPI) showed that in 2019, CEOs made 320 times more than the average worker, supporting evidence showing accelerating payment among corporate executives beginning decades ago.
Concerning the report, research assistant and co-author Jori Kandra said, “This huge growth in CEO pay is not a reflection of the market for talent. We know this because CEO compensation has grown more than three times faster than the growth of earnings for the top 0.1% of earners, which was 337% over the same period.”
She added, “This means that CEO pay can be curbed to reduce the growing gap between the highest earners and everyone else with little, if any, impact on the output of the economy or firm performance.”
In the last four decades, CEOs have seen a 1,167% rise in earnings — a stark contrast to the 13.7% growth in worker compensation. In 1965, the wage gap between CEOs and their employees was 21-to-1.
The study’s data emphasizes the growing problem that is US income disparity. EPI distinguished fellow and co-author Lawrence Mishel said, “While wage growth for the majority of Americans has remained relatively stagnant for decades, CEO compensation continues to balloon. This has fueled the spectacular income growth of the top 0.1% and 1.0% and the growth of income inequality overall.”
The stock market’s expansion is fueling the increasing inequality between CEO and employee compensation. While the average worker’s wage is based on productivity and performance, CEOs are compensated according to the value of their companies’ shares.
Mischel noted that wage inflation is another culprit. He said that a board of directors sets a CEO’s salary. However, “if each board considers its own CEO above average and sets their pay to be above average,” it leads to “an ever ratcheting up” of executive salary.
But, Mischel added, “not everyone can be above average.”
In light of the coronavirus pandemic and subsequent historic unemployment levels, several CEOs have declared that they will lower their salary or skip their yearly paycheck altogether. As Mishel said to Yahoo Money, these pledges “aren’t serious gestures of restraining CEO compensation,” and are more like PR performances.
“CEOs offering salary cuts during the coronavirus pandemic yield press releases but no real progress toward reducing inequality and raising workers’ wages,” Mishel added.
Three-fourths of US executives’ earnings come from vested stocks and share options, with a marginal 6.2% profit deriving from income. Essentially, promises of a pay cut are meaningless since they still have their share options.
Mischel predicts that CEOs’ salaries “will probably rise further in 2020,” due to Wall Street’s continuous rally.
To bridge the gap between executives’ and workers’ wages, EPI researchers proposed ideas such as increased tax rates and limits on how much CEOs earn. Kandra noted, “CEO pay can be curbed to reduce the growing gap between the highest earners and everyone else with little, if any, impact on the output of the economy or firm performance.”
- 18, Press Releases • August. “CEO Pay Increased 14% in 2019, and Now Make 320 Times Their Typical Workers.” Economic Policy Institute, 18 Aug. 2020, www.epi.org/press/ceo-pay-increased-14-in-2019-and-now-make-320-times-their-typical-workers/.Asymkos, Stephanie. “American CEOs Now Make 320 Times What Their Workers Earn.” Yahoo!, Yahoo!, 18 Aug. 2020, money.yahoo.com/american-ce-os-now-make-320-times-what-their-workers-earn-203111003.html.