CEOs in the 350 largest U.S. firms were paid an average of $16.3 million in 2014, or 303 times more than the typical worker, according to Top CEOs Make 300 Times More than Typical Workers: Pay Growth Surpasses Stock Gains and Wage Growth of Top 0.1 Percent. This CEO-to-worker pay ratio far exceeds that in earlier years—for example, the ratio was just 20-to-1 in 1965, 30-to-1 in 1978 and 59-to-1 in 1989. In the report, EPI president Lawrence Mishel and research assistant Alyssa Davis find that CEO compensation has increased 997 percent over the last 36 years, a rise nearly double the stock market growth and substantially greater than the 10.9 percent wage growth experienced by typical workers during the same period.
“The fact that executives’ wages have grown faster than those of the top 0.1 percent of wage earners means that this isn’t a matter of a market demand for talent. This growth isn’t happening because CEOs are being exceptionally productive—they simply have more power over what they’re paid,” Mishel said. “Since this is the case, reducing or taxing executive compensation won’t have an adverse impact on economic output or employment.”
The continued rise of CEO compensation has pulled up the pay of other executives and managers and been a major factor fueling the growth of top 1 and 0.1 percent incomes, thereby increasing income inequality. CEOs also out-earn other very-high-wage earners—over the last three decades, the rise in CEO compensation relative to the pay of other very-high-wage earners far exceeded the rise in wages of college graduates relative to those of high school graduates. In 2013, CEOs earned 5.8 times more than the top 0.1 percent of wage earners.
“CEO pay is not a symbolic issue—it has real consequences for the vast majority of wage earners. The rising pay of executives reflects wages that could have otherwise gone to workers and has fueled inequality in the United States,” said Davis. “Despite a booming stock market and the fact that profits have reached record highs, the wages of most workers are still stagnant and have been for over a decade.”
Mishel and Davis suggest numerous ways to curtail executive pay growth, including higher marginal income tax rates on top earners and removing the tax break for executive performance pay. Corporate tax rates for firms that have higher ratios of CEO-to-worker compensation could also be set higher. Finally, greater use of “say on pay” by corporate governance would allow shareholders to vote on top executives’ compensation.
Methodology
The study measures the compensation of CEOs in the largest firms and includes how much the CEO realized in that particular year by exercising stock options available. The options-realized measure reflects what CEOs report as their Form W-2 wages for tax reporting purposes and is what they actually earned in a given year. This is the measure most frequently used by economists. In addition to stock options, the compensation measure includes salary, bonuses, restricted stock grants, and long-term incentive payouts. The ratio of CEO-to-worker compensation is measured for each of the largest 350 firms: the ratio of the CEOs’ compensation to the annual compensation (wages and benefits) of full-time, full-year workers in the key industry of the firm (data on the pay of workers in any particular firm are not available). Full methodological details and benchmarking to other studies can be found in Methodology for Measuring CEO Compensation and the Ratio of CEO-to-Worker Compensation, 2012 Data Update.