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News from EPI CEOs Made 296 Times Typical Workers in 2013

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A comprehensive study of CEO compensation at the top 350 publically traded firms, was released today by the Economic Policy Institute. CEO Pay Continues to Rise as Typical Workers are Paid Less, by EPI President Lawrence Mishel and Research Assistant Alyssa Davis, showed that CEOs were paid an average of $15.2 million in 2013—296 times more than the typical worker.

The ratio of CEO to worker compensation is far higher than it was in the 1960s, 1970s, 1980s, or 1990s. The ratio was 20-to-1 in 1965 and 29.9-to-1 in 1978. It peaked at 382.4-to-1 in 2000, and has been climbing again since the end of the Great Recession. The CEO-to-worker-pay ratio is calculated by determining the compensation of a typical worker in each industry and comparing it to what CEOs are paid in that industry. Those ratios are then averaged to find an overall ratio.

CEO pay is up 2.8 percent from 2012, and 21.7 percent since 2010. CEO pay has increased 937 percent since 1978—more than double the gains made by the stock market, and even outpacing the earnings of the top 0.1 percent of wage earners. Compensation for the typical worker, meanwhile, grew 10.2 percent in that time.

“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,” said Mishel. “It’s clear that this is not simply CEOs being fairly compensated for making firms more productive.”

The large discrepancy between the pay of CEOs and other very high wage earners casts doubt on the claim that CEOs are being paid because of their special skills. Instead, CEOs are exerting their influence to command outsize compensation packages. CEOs could easily be paid less, or be taxed more, with no adverse impact on productivity or employment.

Mishel and Davis suggest numerous ways of curtailing runaway executive pay growth, such as raising marginal tax rates on top earners, removing the tax break for executive performance pay, and setting corporate tax rates higher for firms with higher ratios of CEO-to-worker compensation. 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.