Average compensation for CEOs at the top 350 firms was $15.5 million in 2015, down 5.1 percent from the $16.3 million in 2014, according to a new analysis from EPI President Lawrence Mishel and research assistant Jessica Schieder. In Stock market headwinds meant less generous year for some CEOs, Mishel and Schieder estimate CEO compensation using a comprehensive measure that covers chief executives of the top 350 U.S. firms and includes salaries, bonuses, restricted stock grants, long-term incentive payouts and the value of stock options exercised in the past year.
Mishel and Schieder attribute the fall in CEO pay in 2015 to a faltering stock market, and a corresponding decline in the potential value of stock options—not any structural changes in corporate governance or how CEO compensation is set. 83 percent of the decline in CEO pay from 2014 to 2015 can be explained by the drop in the value of realized stock options in that period.
“The stock price of any given company is largely a reflection of the stock market overall, not its CEO’s performance,” said Mishel. “We see that in the way that average CEO pay tracked the stock market in 2015. CEO compensation will likely resume its upward trajectory when the stock market moves up again.”
Top CEOs took home 276 times more than a typical worker—down from 302-to-1 in 2014 but still far higher than it’s been in previous decades. The CEO-to-worker compensation ratio was 20-to-1 in 1965, and peaked at 376-to-1 in 2000.
“CEO pay has grown far faster than the pay of typical workers, college graduates, or even the top 0.1 percent,” said Schieder. “Skyrocketing CEO pay isn’t about the market for talent—it’s about what executives can get away with.”
From 1978 to 2015, inflation-adjusted compensation of top CEOs increased 940.9 percent, a rise 75 percent greater than stock market growth and substantially greater than the painfully slow 10.3 percent growth in a typical worker’s annual compensation over the same period.
CEO pay has also grown far faster than pay of other highly paid workers. CEO compensation was 5.6 times more than wages of the top 0.1 percent of wage earners in 2014 (the latest year data on top wage earners is available), an indication that rising CEO compensation does not simply reflect the increased value of highly paid professionals in a competitive marketplace, but rather the power of CEOs to extract concessions and rents. Consequently, Mishel and Schieder conclude, there would be no adverse impact on productivity or employment if CEOs earned less, or were taxed more.
Full methodological details for the construction of EPI’s CEO compensation measure, comparisons to the pay of workers, and benchmarking to other studies can be found on EPI.org.