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This phenomenon is explored in a new report by the Economic Policy Institute (EPI), whose findings are staggering. From 1978 to 2021, CEOs at the top 350 firms in the U.S. saw their compensation packages grow by 1,460%. For purposes of comparison, the stock market grew by 1,063% during that time, and the top 1% of earners saw their compensation rise 385% between 1978 and 2020 (the latest data available).
Even under the most generous assessment of the value a CEO brings to a company (or to its stock price), the gulf between top executives and the rank and file is extreme. More to the point, CEO pay isn’t really controlled or regulated by anything other than board votes. For an employee who is constantly being ground down to the lowest wage that can possibly be paid, that has to rankle.
“The reason for this mostly lies in the totally dysfunctional wage market in which CEOs reside,” says Josh Bivens, director of research at the EPI and a co-author of the study. “We’re talking about a big enough chunk of money that it actually matters, too.”
The average compensation package for a CEO at one of the U.S.’s top 350 companies last year was nearly $28 million, per EPI’s research. Significantly, very little of that total, only about 10%, was taken in salary, Bivens says, while roughly 80% came in the form of stock awards. (The next time you read about a CEO forgoing his salary amid a corporate crisis, it’s something to keep in mind.)
Partly because of that heavy stock mix, the institute looks at CEO compensation in two ways: the “granted” measure, which is the value of the stock rewards and options at the time they’re given, and the “realized” measure, which is what they’re worth when the stock awards are vested and the options cashed in.
By both methods of computation, top CEOs are killing it. Using the realized measure, they actually averaged an 11.1% increase in pay from 2020 to 2021, when the pandemic brought entire industries to a near halt and millions of Americans were thrown out of work. Reason? The stock market went up, and along with it the value of vested stock awards.
At most public companies, CEO pay is theoretically set by the shareholders themselves. “But the shareholders are usually represented by boards of directors, and in many, many cases, the members of those boards are hand-picked by the CEO,” Bivens says.
As a result, only about 3% of CEO compensation packages ever get turned down, Bivens says. Tim Cook’s deal was recommended against by the Maryland-based Institutional Shareholder Services, which noted that half of it wasn’t tied to a performance-based metric such as Apple’s stock price, and that the stock awards would continue to vest even if the 61-year-old Cook were to retire. It went forward anyway.
“If you get paid $85,000 for a job you’d take at $65,000, you have $20,000 in rents,” Bivens says. “The average top CEO pay is $28 million. We’re asking what would happen if, say, that compensation was cut in half. Would these executives really not show up at work or not work as hard for $14 million?”
It isn’t an idle thought. The notion of top CEO pay is tied to the idea that corporations have to offer such bloated deals because of competition with other companies for those executive minds. But as EPI’s report notes, “They are not getting higher pay because they are becoming more productive or more skilled than other workers, or because of a shortage of excellent CEO candidates.” They’re getting paid more simply because they are.
What might turn that tide? Bivens says that, historically, companies whose workers are unionized tend to rein in the compensation of their executives, in part because those top pay figures often become publicly debated and criticized during labor negotiations. It’s also possible to tweak corporate governance in a way that encourages more direct voting by shareholders on things like CEO packages, diluting the sway of executive-friendly boards.
More broadly, the EPI recommends imposing higher marginal tax rates on the top earners, to “limit rent-seeking behavior and reduce the incentive for executives to push for such high pay.” Another option, the institute’s authors write, is to set corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation.
“It’s one thing to have an incentive to attract great CEO candidates,” Bivens says. What we’re seeing now is runaway compensation of another order entirely — the kind that ought to make shareholders wonder about the value they’re really receiving.
Capital and Main October 21, 2022 -
In a video that went viral this week, Rep. Katie Porter (D-Calif.) cited an Economic Policy Institute analysis showing how larger corporate profits are behind 53% of the higher prices Americans are facing at gas pumps as well as when buying groceries and paying for other essentials.
Common Dreams October 21, 2022 -
An analysis released in August by the Economic Policy Institute shows teachers’ weekly pay and total compensation have worsened over time compared to other college-educated professionals. The EPI report acknowledged this situation discourages college students from entering teaching careers and makes it more difficult for districts to retain teachers.
K-12 Dive October 21, 2022 -
The big picture: Over 61% of people who work cleaning houses in the U.S. are Hispanic, according to an analysis of census data from the Economic Policy Institute think tank.
Axios October 21, 2022 -
Latinos also are less likely to have access to investing. Latino household wealth lags that of white counterparts, and only 26% of Hispanic households have access to an employer-sponsored 401(k) plan, compared to 37% of Black households and half of white ones, the Economic Policy Institute found.
CNBC October 21, 2022 -
Modern interpretations of the “brand called you” present a trade-off of sorts. Workers are no longer reliant on the fecklessness of an employer that could at any moment pivot, downsize or cut wages. There are heaps of corporate data pointing to those possibilities: Over roughly the last four decades, typical hourly worker pay rose 17.5 percent while productivity rose by nearly 62 percent and C.E.O. compensation by 1,460 percent, according to the Economic Policy Institute.
New York Times October 21, 2022 -
The Washington, D.C.-based think tank Economic Policy Institute estimates that day care in Michigan costs $905 a month for an infant, and $741 for a 4-year-old child. Housing in Michigan on average costs $844 a month, according to the Economic Policy Institute.
MiBiz: West Michigan Business News October 21, 2022 -
Like many observers, Reeves paints a picture of an economy that has failed men. Their labor force participation has fallen sharply, for instance. However, Reeves’s contention that the drop is due to “a one-two punch, of automation and free trade” is undermined by his subsequent concession that no academic consensus exists on these points. Reeves also writes that the “median real hourly wage for men peaked sometime in the 1970s and has been falling since.” But analysts ranging from the liberal Economic Policy Institute to, well, me, have found that, after a lengthy period of decline, men’s pay has rebounded back to historic highs over the past 30 years.
Education Next October 21, 2022 -
The Economic Policy Institute reported that economic consequences of being denied an abortion included a higher chance of living in poverty, a lower likelihood of full time employment and an increase in unpaid debt and financial distress.
The Hill October 21, 2022 -
The CTC originated from the Taxpayer Relief Act of 1997. It started at $400 per qualifying child and was a nonrefundable tax credit. Nonrefundable tax credits reduce the taxpayer(s)’ tax liability and aren’t issued as a tax refund. The Economic Policy Institute stated that the purpose of Congress creating the CTC was to minimize the tax burden of families having more children. It gained momentum and was widely supported by both Democrats and Republicans, which led to an increase of $1,000 per qualifying child of age 16 and under in 2001 initiated by the Bush administration’s tax policy.
Bloomberg Tax October 21, 2022