The Pay Gap Between CEOs and Workers

It is no secret that the executives of publicly traded companies are paid at rates that greatly exceed those of the rank-and-file.  In a recent survey of 356 companies by Equilar, the median ratio of CEO to worker pay was found to be 140:1, the average ratio jumps even higher, to 241:1.  A 2016 survey of S&P 500 index companies conducted by the AFL-CIO found that CEOs made, on average, $13.1 million a year compared to a rank-and-file worker’s $37,632 (a ratio of 348:1).

Over the past few decades, CEO pay packages, which typically include bonuses and stock options in addition to salary, has ballooned while the average salary of workers has remained relatively stagnant. An analysis from the Economic Policy Institute shows that CEO pay (adjusted for inflation) increased from 1.5 million in 1978 to 16.3 million in 2014, a surge of 997 percent.  During the same period the paycheck for an average worker increased by only 10.9 percent, from $48,000 to $53,200. And, although executive compensation is high around the world, American CEOs are still paid much more than most of their global competitors.

While many companies bemoan the difficulty of precisely calculating yearly CEO pay due to the fact that it is determined by bonuses and stock options which do not strictly follow the fiscal calendar, the writing on the wall offered by the pay-gap statistics is clear.  For years, workers have been sold the myth of trickle-down economics, both by politicians and Wall Street.  When publicly traded companies perform well, the rewards have invariably flowed upwards, not to the rank-and-file.  As the movement for minimum wage increases gains momentum and the erosion of America’s once thriving middle class becomes more evident, opposition to the trickle-down narrative has swelled among Americans.

Soon, however, there will be a more detailed set of pay gap data to interpret.  In 2015, the Securities and Exchange Commission ruled that public companies must disclose the compensation of their CEOs.  The ruling took effect for the 2017 fiscal year and the disclosures will be made available in spring of 2018, thanks to a provision in the 2010 Dodd-Frank Act.  With better data and more transparency, workers, companies, politicians and policy makers will be in a stronger position to assess and confront this problem.