A new report has found that the chief executives of the US’s largest public firms have seen their pay skyrocket by 1,322 per cent since 1978.
These outsize compensation packages have grown faster than the stock market, and the pay of typical workers, college graduates, and even the top 0.1 per cent, according to the Economic Policy Institute.
“CEOs are getting more because of their power to set pay and because so much of their pay (more than 80 per cent) is stock-related, not because they are increasing their productivity or possess specific, high-demand skills.”
During the same period, the pay of the typical worker increased 18 per cent.
The report uses a “realised” measure of CEO pay that counts stock awards when vested and stock options when cashed in, rather than when granted.
One of the biggest jumps in executive pay was during the Covid-19 pandemic, which the authors describe as “remarkable”.
“While millions were out of work, CEOs’ realised compensation jumped 18.9 per cent in just one year.” they write.
“Typical worker compensation, of those who remained employed, did rise 3.9 per cent over that year – and even that wage growth is overstated: Perversely, high job loss among low-wage workers skewed the average wage higher.”
Historically, using the realised compensation measure, the CEO-to-worker compensation ratio was 21-to-1 in 1965, 61-to-1 in 1989, and peaked at 366-to-1 in 2000.
In 2020 the ratio was 351-to-1. The ratio was far higher than at any point in the 1960s, 1970s, 1980s, or 1990s.
As to how the problem of massive income inequality can be solved, the EPI recommends enacting policy solutions that would reduce incentives for CEOs to extract economic concessions and limit their ability to do so.
“Such policies could include reinstating higher marginal income tax rates at the very top; setting corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation; use of antitrust enforcement and regulation to restrain firms’ – and by extension, CEOs’ – excessive market power; and allowing greater use of ‘say on pay’, which allows a firm’s shareholders to vote on top executives’ compensation.”
In March, Senator Bernie Sanders introduced legislation that proposes raising the corporate tax rate by 0.5 per cent for companies that report a CEO-to-median-worker pay ratio of 50-to-1.
The tax increase would grow to five per cent for companies reporting a ratio of 500-to-1 or higher.