Wherever you stand in debates about economic fairness, and issues like executive pay, it’s undeniable that the gap between highest and lowest incomes is wide and growing. Last year, average CEO compensation among the 350 largest U.S. public companies was $14.1 million (including income from options), which was a 12.7% increase on 2011, and 37.4% jump over 2009. At the same time, wages among average workers (about $50,000) have been stagnant. Hence, in 2012, CEOs got 272.9 times more than their counterparts on the factory floor.
The Economic Policy Institute, which produced the numbers, notes that the CEO-to-worker ratio has been rising since the 1960s, albeit with a few blips. It was just 20.1-to-1 in 1965, before climbing to 29.0-to-1 in 1978, 122.6-to-1 in 1995, and 383.4-to-1 in 2000. It fell back in the mid-2000s, before rising again in 2007 (351.3-to-1), falling, and now rising again. Since 1978, average worker pay has barely moved (it was $48,600 then), but CEO compensation has been on a tear.
In fact, CEOs have been doing so well, they’ve managed to outperform the market, as it were. Between 1978 and 2010, the Dow Jones rose 389%, but CEO pay jumped 876%. Not only did C-suiters manage to get their fair share of their companies’ financial gains, they managed to get themselves even more. In fact, what is most interesting about the EPI’s analysis is that CEOs are even out-accumulating the rest of the very best paid. In 2010, they made 4.7 times more than the rest of the 0.1% wage earners, compared to 3.1 times in 1979.
Other economists explain this higher-than-the-highest phenomenon by saying that CEOs’ jobs are becoming more difficult, and that they therefore should be paid better. But the EPI favors a different explanation: that CEOs hold the reins of their organizations and can win the compensation that suits them. You might say that this sort of “managerial power,” as the EPI calls it, is unimportant. But unaccountable CEOs tend to be dangerous.