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Its good to be the CEO of a major American corporation these days. According to a new study from the Economic Policy Institute, they earn 300 times what the average American worker does.
Much has been said in the last few years about the ever widening gap between America’s wealthiest citizens and its average people. The richest 1% hold the vast majority of the nation’s wealth. Also, over the last 30 years, the pay gap between the country’s top corporate executives and its average workers has skyrocketed.
According to the study, CEOs of America’s big firms earn three times more than they did 20 years ago and at least 10 times more than 30 years ago.
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The report states that, “The increase in CEO pay over the past few years reflects improving market conditions driven by macroeconomic developments and a general rise in profitability. For most firms, corporate profits continue to improve, and corporate stock prices move accordingly. It seems evident that individual CEOs are not responsible for this broad improvement in profits in the past few years, but they clearly are benefiting from it.”
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Here are some of the study’s main findings:
Over the last three decades, compensation for CEOs grew far faster than that of other highly paid workers, i.e., those earning more than 99.9 percent of wage earners. CEO compensation in 2013 (the latest year for data on top wage earners) was 5.84 times greater than wages of the top 0.1 percent of wage earners, a ratio 2.66 points higher than the 3.18 ratio that prevailed over the 1947–1979 period. This wage gain alone is equivalent to the wages of 2.66 very-high-wage earners.
Also over the last three decades, CEO compensation increased more relative to the pay of other very-high-wage earners than the wages of college graduates rose relative to the wages of high school graduates.
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 value of highly paid professionals in a competitive race for skills (the “market for talent”), but rather reflects the presence of substantial “rents” embedded in executive pay (meaning CEO pay does not reflect greater productivity of executives but rather the power of CEOs to extract concessions). Consequently, if CEOs earned less or were taxed more, there would be no adverse impact on output or employment.
Critics of examining these trends suggest looking at the pay of the average CEO, not CEOs of the largest firms. However, the average firm is very small, employing just 20 workers, and does not represent a useful comparison to the pay of a typical worker who works in a firm with roughly 1, 000 workers. Half (52 percent) of employment and 58 percent of total payroll are in firms with more than 500 or more employees. Firms with at least 10, 000 workers provide 27.9 percent of all employment and 31.4 percent of all payroll.
See the full report here.
