U.S. CEOs make 303 times more than typical American workers. The rapid rise in pay for corporate executive officers stands in contrast to the stagnant wages of many Americans and is not clearly tied to talent or performance, a new report from the Economic Policy Institute finds. CEOs earned three times more than they did 20 years ago and at least 10 times more than 30 years ago, a pace of increase that is high even compared to other high-wage earners.
Average CEO compensation for the largest 350 firms was $16.3 million US in 2014, including pay, stock options, bonuses and other perks, according to the research. And the top men and women did extraordinarily well in the years since the financial crisis, with compensation up 54.3 per cent since 2009 — while the typical worker is still experiencing the detrimental effects of a stagnant labour market and has seen wages drop an average of 1.7 per cent since 2009, according to the research.
Nor does it seem to relate to share prices, as CEO compensation increased 997 per cent from 1978 to 2014, almost double stock market growth. The main relationship between CEO pay and stock performance is that executives cash in their stock options when stock valuations are high, the research found.
“The growth of CEO and executive compensation overall was a major factor driving the doubling of the income shares of the top 1% and top 0.1% of U.S. households from 1979 to 2007,” write EPI researchers Lawrence Mishel and Alyssa Davis. They compared the pay gains of CEOs against other high-wage earners and found the executives were paid substantially more.
CEOs are paid more because they are able to extract concessions from their boards of directors.
“Compensation of CEOs has far outpaced that of very highly paid workers, the top 0.1% of earners,” write Mr. Mishel and Ms. Davis. “There are substantial rents embedded in executive pay, meaning that CEO pay gains are not simply the result of a competitive market for talent,” they say, citing earlier research findings. Because of this, they conclude, if CEOs “were paid less there would be no loss of productivity or output.”