Workers See Just 24% Increase.
Staggering Growth In CEO Compensation Compared To Workers’ Pay.
From 1978 to 2023, chief executive officers at America’s largest firms experienced a dramatic 1,085% increase in compensation, while the average worker’s salary rose by just 24%, as highlighted in a recent annual report.
The report, produced by the Economic Policy Institute (EPI), scrutinizes compensation trends at the top 350 publicly traded U.S. companies measured by revenue. The methodology for assessing CEO pay, which predominantly comprises stock-based components, involves both a retrospective view using realized compensation and a prospective angle via granted compensation.
In concrete figures, CEO pay escalated from $1,874,000 in 1978 to an astonishing $22,207,000 in the last year. This represents the 1,085% surge. In contrast, the average pay for private-sector workers adjusted for inflation was $57,000 nearly 50 years ago and has modestly increased to $71,000.
The disparity in pay growth is further illustrated by the CEO-to-worker compensation ratio, which stood at 290-to-1 in 2023, a stark rise from the 21-to-1 ratio in 1965. Over the past two decades, this ratio has consistently exceeded figures from the late 20th century.
Last year’s analysis, which coincided with the United Auto Workers strike against the major automakers, noted that CEO compensation was 344 times that of average workers. However, there was a notable 19% reduction in CEOs’ realized compensation from 2022 to 2023, showing some signs of adjustment.
Changing Trends In How CEOs Are Compensated
The structure of CEO pay is shifting significantly, moving from reliance on stock options to greater use of stock awards, which are seen as better aligned with long-term performance goals. In 2006, stock options made up over 70% of the stock-related compensation in CEOs’ pay packets. By 2023, this figure had dropped to 22%, with the remainder coming from vested stock awards. In 2023, the average stock-related compensation, consisting of exercised stock options and vested stock awards, was $16.7 million, making up 77.6% of the average realized CEO compensation.
Despite these changes, advocates for economic justice argue that much more needs to be done to enhance pay and working conditions for U.S. workers. The report emphasizes the disproportionate scale of CEO pay even when compared to the upper echelons of the workforce.
EPI researchers pointed out that in 2022, CEOs earned more than nine times the salary of the top 0.1% of earners. This 9.4 ratio is significantly up from the historical average of 2.6 during the period from 1965 to 1978. This indicates a substantial relative increase in CEO pay compared to other highly paid workers.
Josh Bivens, EPI’s chief economist and co-author of the report, criticized the excessive leverage CEOs have over corporate boards, which he argues is not justified by their skills or contributions. Bivens also noted that the exorbitant CEO pay has been a key driver of rising inequality, concentrating wealth at the top and limiting economic gains for regular workers.
The report suggests that reining in CEO compensation could be achieved without harming overall economic growth. EPI recommends higher marginal income tax rates for the wealthiest and increased corporate taxes for companies with high CEO-to-worker pay ratios.
Earlier this year, Americans for Tax Fairness and the Institute for Policy Studies identified 35 major corporations, including well-known names like Ford, Netflix, and Tesla, that paid their top executives more than their entire federal tax liabilities from 2018 to 2022.
As part of broader reforms, EPI emphasizes the need for changes in corporate governance to prevent excessive CEO pay practices and to avoid a society dominated by a wealthy few. Elise Gould, senior economist at EPI and co-author of the report, asserts that policies limiting CEOs’ influence on corporate boards are crucial for more equitable compensation structures.