CEO-Minimum Wage Ratio Soars

See Snapshots Archive.

This week's Snapshot previews data to be presented as part of the forthcoming The State of Working America 2006/07.

Snapshot for June 27, 2006.

CEO pay-to-minimum wage ratio soars

by  Lawrence Mishel

In 2005, an average Chief Executive Officer (CEO) was paid 821 times as much as a minimum wage earner, who earns just $5.15 per hour. An average CEO earns more before lunchtime on the very first day of work in the year than a minimum wage worker earns all year.

The chart below shows the ratio of the average annual compensation of CEOs—including all bonuses, incentives, and so on*—to the annual compensation of a full-time, full-year minimum wage earner (assumed to receive an average amount of benefits).

This extreme compensation ratio reflects both the extraordinary growth of CEO pay and also the diminishing value of the federal minimum wage that has not been raised since 1997: adjusting for inflation, the purchasing power of the minimum wage is now at its lowest since 1955.

The ratio wasn't always so extreme. As recently as 1978, CEOs were paid only 78 times as much as minimum wage earners. 

*Data note:
CEO pay is realized direct compensation defined as the sum of salary, bonus, value of restricted stock at grant, and other long-term incentive award payments from a Mercer Survey conducted for the Wall Street Journal and prior Wall Street Journal-sponsored surveys. This survey covered 350 large industrial and service firms that filed their proxy statements by the beginning of April. The minimum wage earners' compensation is based on the level of the federal minimum wage at a full-time, year-round job along with benefits calculated at the economy-wide ratio of compensation to wages.

For more on CEO pay disparity, see last week's Snapshot.