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While your salary stays the same, CEOs keep getting raises

CEOs are outearning regular workers by a whopping 312 to 1.

While your salary stays the same, CEOs keep getting raises
[Source Image: GraphicaArtis/Getty Images]

The U.S. economy is doing fairly well, on paper at least–unemployment is down to around 3.9% from around 4.4% last year, and the labor force is steadily ballooning.

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But all this masks a more pernicious trend: Pay, for regular workers, is still stagnant. From 2016 to 2017, compensation for typical workers rose just 0.3% (with inflation, that means pretty much not at all) and many people are struggling to access basic needs like housing and food.

But what about for non-regular workers? According to a new report from the nonprofit think tank Economic Policy Institute, compensation for the average CEO of the top 350 firms in the U.S. grew by 17.6% in 2017. Their average take-home salary: $18.9 million.

This number comes from combining stock options that CEOs cashed in on, alongside typical measures like salary and bonuses. To ensure they captured the whole picture of CEO compensation growth, EPI also looked at another measure–the value of stock options once they were granted to executives, not just when they were cashed in. By this more modest calculation, CEO compensation in 2017 hovered around $13.3 million, up from $13 million in 2016.

But by either measure, EPI notes, CEO compensation–especially relative to that of regular worker compensation–is insanely high. In the report, authors Lawrence Mishel and Jessica Schneider note:

“CEO compensation has grown far faster than stock prices or corporate profits. CEO compensation rose by 979 percent (based on stock options granted) or 1,070 percent (based on stock options realized) between 1978 and 2017. The corresponding 637 percent growth in the stock market (S & P Index) was far lower. Both measures of compensation are substantially greater than the painfully slow 11.2 percent growth in the typical worker’s compensation over the same period and at least three times as fast as the 308 percent growth of wages for the very highest earners, those in the top 0.1 percent.”

In that same time period, worker productivity has increased by 77%. In short, CEOs are making a killing at the expense of pretty much everyone below them. Exorbitant CEO compensation, the report authors write, “means that the fruits of economic growth are not going to ordinary workers.” And it’s fundamentally nonsensical: High CEO pay does not correspond with better firm performance. “If CEOs earned less or were taxed more, there would be no adverse impact on output or employment,” they write.

So why is this happening? “CEOs are getting more because of their power to set pay, not because they are more productive or have special talents or more education,” the authors write. Unfortunately, the key solutions to this problem–higher taxes on big earners and on corporations with higher CEO-to-worker pay ratios–are unlikely to materialize under the Trump administration and the current Congress, which instead has rolled back taxes on these exact demographics.

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But there are some steps companies themselves can take to flatten out the gulf between CEO and worker pay, the authors note. For one, they can decide to set a cap on CEO compensation–and to do so, they should allow a greater use of “say on pay,” which allows a firm’s shareholders and board to vote on top executives’ compensation. And on top of that, companies should seriously consider allowing the ordinary workers, who are bearing the unfortunate fallout of this corporate trend, a greater say in how their company’s money is allocated by granting them seats on that decision-making board.

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About the author

Eillie Anzilotti is an assistant editor for Fast Company's Ideas section, covering sustainability, social good, and alternative economies. Previously, she wrote for CityLab.

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