CEO pay among the top 350 publicly traded companies was 296 times higher than typical workers’ pay, a new study published by the Economic Policy Institute showed. On average, CEOs were paid $15.2 million in 2013.
According to to the study, “CEO Pay Continues to Rise as Typical Workers are Paid Less“, written by EPI President Lawrence Mishel and Research Assistant Alyssa Davis, the CEO-to-worker compensation ratio is significantly higher today than it was from the 1960s to the 1990s.
Gap widening since 1965
From 1965 to 1978 the ratio grew from 20-to-1 to 29.91-to-1. In the year 2000 it peaked at 382.4-to-1. Since the end of the Great Recession it has been climbing again.
CEO pay has increased:
- 2.8% since 2012,
- 21.7% since 2010, and
- 837% since 1978.
The average pay of CEOs has more than doubled compared to stock market gains since 1978, and have even increased faster than that of the 0.1% top wage earners.
Typical workers pay, on the other hand, increased by just 10.2% since 1978.
CEOs earning more, workers getting less
Mr. Mishel said:
“The fact that CEOs make almost 300 times what workers make should set off alarms. CEO pay has outpaced worker pay, the stock market, and even the wages of other top earners.”
“CEOs are making more and more while workers are making less—even when worker productivity is skyrocketing. It’s clear that this is not simply CEOs being fairly compensated for making firms more productive.”
The claim that CEOs are paid according to their extraordinary skills has become less convincing since other very high wage earners’ incomes have risen much more slowly.
The authors suggest CEOs are exerting their influence to obtain giant compensation packages. Employment or productivity would not suffer if CEOs were paid less or taxed more.
Davis and Mishel put forward several ways of stemming the runaway growth of executive pay, including:
- raising top earners’ marginal tax rates,
- removing the tax concession for executive performance pay,
- raising corporation tax rates for company’s whose CEO-to-worker compensation ratios are high, and
- “Changes in corporate governance, including use of ‘say on pay’ policies, which allow shareholders to vote on top executives’ compensation, would also potentially limit CEO pay.”
Falling profits but large CEO pay rises
In February 2014, JPMorgan announced that due to financial problems it would have to cut 8,000 job in its retail banking and mortgage divisions. The largest bank in the US had previously announced 4,000 job cuts. So far, 16,500 workers have been laid off.
Despite these cuts, JPMorgan had still managed to increase its CEO’s pay by 74% from $11.5 million to $20 million, despite profits plunging by 16%.
In spite of clocking up an astronomical loss of £8.243 billion ($13.30 billion), the Royal Bank of Scotland still managed to find £576 million ($964) for top executive bonuses.
(Source: Economic Policy Institute)
