From 1978–2011, CEO compensation grew more than 725 percent, substantially more than the stock market and remarkably more than the annual compensation of a typical private-sector worker, which grew a meager 5.7 percent. One way to illustrate the increased divergence between CEO pay and a typical worker’s pay over time is to examine the ratio of CEO compensation to that of a typical worker, the CEO-to-worker compensation ratio, as shown in the figure. This ratio measures the gap between the compensation of CEOs in the 350 largest firms and the workers in the key industry of the firms of the particular CEOs.
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Though lower than in other years in the last decade, the CEO-to-worker compensation ratio in 2011 of 231.0 (calculated with options realized) or 209.4 (calculated with options granted; see measurement details below) is far above the ratio of 20.1 or 18.3 from 1965. This illustrates that CEOs have fared far better than the typical worker over the last several decades. It is also true that CEO compensation has grown far faster than the stock market or the productivity of the economy.
This overall ratio is computed in two steps. The first step is to compute, for each of the largest 350 firms, the ratio of the CEO’s compensation to the annual compensation of workers in the key industry of their firm (data on the pay of workers in any particular firm are not available). The second step is to average that ratio across all the firms. The data are the resulting ratios in every year. The trends prior to 1992 are based on the changes in average CEO and private-sector worker compensation.
The figure uses two measures of CEO compensation which differ only in their treatment of stock options: one incorporates stock options according to how much the CEO realized in that particular year (by exercising stock options available), and the other incorporates the value (the Black Scholes value) of stock options granted that year. Besides stock options, each measure includes the sum of salary, bonus, restricted stock grants, and long-term incentive payouts. Worker compensation is the full-time, full-year annual wage of production and nonsupervisory workers plus benefits. Complete methodological detail is provided in a working paper.