CEO pay, including realized stock options, rose 12.7 percent in 2012, lifting the CEO-to-worker compensation ratio to 272.9-to-1. The average compensation for CEOs in the United States was $14.1 million in 2012. This is the second year of strong CEO pay growth, which stands in stark contrast to the typical workers’ stagnant pay since the beginning of the recovery in 2009.
In CEO Pay in 2012 Was Extraordinarily High Relative to Typical Workers and Other High Earners, EPI President Lawrence Mishel and research assistant Natalie Sabadish find that not only has CEO compensation continued to grow relative to workers’ pay, it is also growing relative to wages for the top 0.1 percent of wage earners.
“The shocking increase in CEO compensation is not a reflection of the market demand for talent—it’s the result of the fact that CEOs have considerable control over their own pay and significant incentives to demand a greater and greater share of company profits,” said Mishel. “If CEOs earned less or were taxed more, there would be more money for workers with no adverse impact on employment or economic growth.”
Escalating CEO compensation is a major contributor to income inequality. Along with financial sector pay, growing CEO compensation has helped more than double the income share of the top 1 percent over the past three decades. Moreover, the fact that CEO pay has risen so quickly since the end of the Great Recession is an indicator that the top 1 percent is doing far better than ordinary Americans in the recovery.
The paper calculates CEO pay based on salary, bonuses, stock options, and long-term incentive payouts for CEOs at the top 350 firms ranked by sales. In addition to the “options realized” method, the paper calculates CEO compensation using a measure that includes the value of stock options granted to an executive (“options granted”). Using this measure, average CEO compensation was $10.7 million in 2012, 7.1 percent lower than in 2011 though still 9.1 percent greater than in 2009, and 202.3 times more than average worker pay. Mishel and Sabadish conclude that firms pared back the value of new options granted because CEOs fared so well by cashing in options as stock prices rose.
Other findings include:
- From 1978 to 2012, CEO pay including realized stock options grew about 875 percent, a rise more than double stock market growth and substantially greater than the 5.4 percent growth in a typical worker’s compensation over the same period.
- In 2010, CEO compensation was 4.7 times greater than that of the top 0.1 percent of wage earners, a ratio 1.62 higher than the 3.08 ratio that prevailed from 1947 to 1979.
- Over the last three decades, CEO compensation increased further relative to the top 0.1 percent of wage earners than the wages of college graduates grew relative to those of high school graduates.
- Using the measure which includes stock options realized, the CEO-to-worker compensation ratio was 20.1-to-1 in 1965 and 29.0-to-1 in 1978. It grew to 122.6-to-1 in 1995 and peaked at 383.4-to-1 in 2000. The 272.9-to-1 ratio in 2012 was far higher than it was in the 1960s, 1970s, 1980s, or 1990s.