While millions were jobless due to the pandemic-driven recession in 2020, CEO compensation at the top 350 U.S. firms grew 18.9% to $24.2 million on average, according to a new EPI analysis. Meanwhile, typical worker compensation rose 3.9% in 2020, but this wage growth is overstated: high job loss among low-wage workers skewed the average wage higher. With this, the CEO-to-worker compensation ratio rose to 351-to-1, up from 307-to-1 in 2019 and 21-to-1 in 1965.
Since 1978, CEO compensation has skyrocketed 1,322.2%, growing roughly 60% faster than stock market growth during this period and far exceeding the modest 18% compensation growth for the typical worker. (The report focuses on a “realized” measure of CEO compensation including exercised stock options, vested stock awards and salary, bonuses, and long-term incentive payouts.)
The authors—EPI Distinguished Fellow Lawrence Mishel and Research Assistant Jori Kandra—reveal how CEO pay cuts announced during the pandemic, as corporations laid off millions of workers, were largely symbolic. CEOs saw increased pay largely from vesting stock awards and cashing out stock options at a time of high stock prices.
“The escalation of top CEO compensation further exacerbates the inequalities that have grown for four decades and been amplified in the pandemic. CEOs offering pay cuts during the pandemic yielded favorable headlines, but were symbolic at best and a head fake at worst,” said Mishel. “Rising pay for CEOs and other executives is income that would otherwise have gone to others—what these executives earned was not available for broader-based wage growth for typical workers.”
The composition of CEO compensation is shifting away from the use of stock options and toward the use of stock awards. Realized stock awards and stock options totaled $20.1 million in 2020 and accounted for 83.1% of total CEO compensation.
Notably, compensation grew far faster for CEOs than it did for other very highly paid workers—CEO compensation in 2019 was 6.44 times as high as wages for the top 0.1% of wage earners.
“CEO compensation growth does not simply reflect a competitive race for skills,” said Kandra. “Rather, the pay difference between CEOs and top 0.1% earners is the result of CEOs ability to extract concessions, rather than increased productivity among executives. Consequently, if CEOs earned less or were taxed more, there would be no adverse impact on the economy’s output or on employment.”
The authors outline several policy solutions that would limit CEOs’ ability to attain increasingly higher pay—without hurting the overall economy—including:
- Implementing higher marginal income tax rates at the very top of the income ladder to limit rent-seeking behavior and reduce the incentives for executives to push for such high pay.
- Setting higher corporate tax rates for firms with higher ratios of CEO-to-worker compensation.
- Allowing greater use of “say on pay,” which allows a firm’s shareholders to vote on top executives’ compensation.
These results are in sync with Mishel and Kandra’s previous analysis of CEO pay from firms that had reported their executive compensation by the end of April 2021. CEO realized compensation, including realized stock options and vested stock awards, rose 15.9% from 2019 to 2020 among the 281 early reporting firms.