Conservatives say CEO compensation levels are fine now that it takes 10 hours to earn a typical worker’s annual compensation
There have been some interesting responses by conservatives to the new data Natalie Sabadish and I have released on the CEO-to-worker pay ratio. Apparently, our study reporting that CEO pay has fallen during the fiscal crisis and is far down from the dizzying heights of the tech bubble in 2000 is taken to mean that that any concern about the growth of top incomes is now out-of-date and inappropriate.
Conservative columnist Wynton Hall at Breitbart.com writes:
“A graph by the Economic Policy Institute shows that while the relative pay of CEOs shot up in the 1990s, it has since fallen by nearly half, a trajectory that hardly supports the class warfare rhetoric of Occupy Wall Street and the Obama Administration.”
And Greg Mankiw also touted our findings, writing, “The relative pay of CEOs skyrocketed during the 1990s and has since fallen by about half.”
The attention and the recognition of the accuracy of our empirical work are much appreciated. A few comments are in order. First, it seems that these folks are celebrating that a non-problem, at least in their view, has been solved. After all, I don’t recall conservatives being upset by the roughly $20 million CEO pay packages in 2000 or the $18 million CEO packages in 2007. So, it is hard to understand why they feel so gratified by CEO compensation packages averaging $11 or $12 million in 2011.
Second, while it is true that the CEO-to-worker compensation ratio fell from 411.3 in 2000 to 209.4 in 2011, that still means that CEO compensation is spectacularly high. For instance, that means that the average CEO earns in 10 hours what a typical worker earns in an entire year. Moreover, as we reported in our study (page 4):
“CEO compensation in 2011 is very high by any metric, except when compared with its own peak in 2000, after the 1990s stock bubble. From 1978–2011, CEO compensation grew more than 725 percent, substantially more than the stock market [which grew less than 400 percent] and remarkably more than worker compensation, at a meager 5.7 percent.”
The trend in CEO compensation since 1965 is in the figure. Two measures are presented, one where stock options granted are included and the other where stock options exercised are included. In either measure of CEO compensation, the growth between 1978 ($1.3 or 1.4 million), 1989 ($2.5 or 2.6 million), or 1995 ($5.6 or $6.2 million) and 2011 ($11.1 or $12.1 million) is pretty astounding and very hard to justify. Exactly how does one justify/explain that CEO compensation has doubled since 1995?
Figure 1: Note: “Options granted” compensation series includes salary, bonus, restricted stock grants, options granted, and long-term incentive payouts for CEOs at the top 350 firms ranked by sales. “Options exercised” compensation series includes salary, bonus, restricted stock grants, options exercised, and long-term incentive payouts for CEOs at the top 350 firms ranked by sales. Sources: Authors’ analysis of data from Compustat ExecuComp database, Bureau of Labor Statistics Current Employment Statistics program, and Bureau of Economic Analysis National Income and Product Accounts Tables