WASHINGTONCompensation for the nations top CEOs including pay, bonuses and cashed-in stock options rose 17.6 percent last year, to an average of $18.9 million each, the Economic Policy Institute reports. Meanwhile, their workers, who subsist only on paychecks, saw their salaries rise 0.3 percent.
That big gap, covering only the CEOs of the top 350 publicly owned corporations, pushed the ratio of CEO compensation to worker pay to 312-1, EPI added. That means the average top CEO receives in a day 85 percent of what his worker earns in a year.
Not only that, but the CEOs compensation grew so much over the last three decades that they even outpace the rest of the 1 percent, EPI authors Larry Mishel and Jessica Scheider add.
Which leaves the question of what these CEOs do to earn such outrageous payola. The honchos value, the report says, may be a variation of not very much.
CEO compensation has grown far faster than stock prices or corporate profits, the two note. CEO compensation rose by 979 percent, based on stock options granted, or 1,070 percent, based on stock options realized, between 1978 and 2017. The corresponding 637 percent growth in the stock market (S&P Index) was far lower.
Both measures of compensation are substantially greater than the painfully slow 11.2 percent growth in the typical workers compensation over the same period and at least three times as fast as the 308 percent growth of wages for the very highest earners, those in the top 0.1 percent, their report adds.
Mishel and Scheider note CEO compensation often moves in tandem with rises but not necessarily falls in a firms stock price. Compensation did decline to some degree after the financial finaglers of Wall Street pushed the nation and the world into the Great Recession.
But since that slide officially stopped, long before the slump actually ended for workers, CEO compensation grew by 71.7 percent, the two report. Worker pay over those same last seven years 2010-2017 grew by 2.1 percent.
CEOs are getting more because of their power to set pay, not because they are more productive or have special talents or more education. If CEOs earned less or were taxed more, there would be no adverse impact on output or employment, Mishel and Scheider write.
Even the World Bank not known for its criticism of high compensation and the flaws that exposes in the system said the outlandish rewards are a risk, six years ago.
Pay arrangements did provide substantial incentives for excessive risk-taking, economist Lician Bebchuk wrote in January 2012. Under the standard design of pay arrangements, executives were fully exposed to the upside of risks taken but enjoyed substantial insulation from part of the downside of such risks. As a result, executives had incentives to increase risk-taking beyond optimal levels.
And other studies pointed out that when the Great Recession hit, CEOs compensation dropped slightly but was still at 250-1 or more compared to workers while workers actually lost pay.
Mishel and Scheider suggested four policy solutions to limit and reduce incentives for CEOs to give themselves outrageous pay, bonuses and stock options.
They said those options, which wouldnt hurt the economy, include restoring high tax rates on the last dollars of CEOs income. The top marginal rate on those dollars in the 1950s was 91 percent.
Other options include imposing higher tax rates on firms with highly skewed CEO-to-worker pay ratios, caps on CEO compensation, combined with taxing every dollar over that cap, and allow greater use of say on pay, which allows a firms shareholders to vote on top executives compensation.
For years, the late Rep. James Oberstar, DFL-Minn., pushed the idea of taxing every CEO compensation package over $1 million, but he got nowhere in Congress. And the Dodd-Frank financial reregulation law includes a provision letting corporate shareholders hold advisory say on pay votes, which CEOs and boards can ignore.
But though Mishel and Scheider did not say so, at least one of their ideas higher tax rates on firms with outlandish CEO-to-worker pay ratios has gained traction in several cities. The most-notable one: Portland, Ore., headquarters of Nike.
The AFL-CIOs Executive Paywatch site reports Nike CEO Mark Parker made $13.85 million last year, most of it in stock, options and non-equity incentive plan compensation. Thats 358 times what an average U.S. worker earned last year, meaning Parker earned almost as much in a day Saturdays, Sundays and holidays included as an average U.S. worker earns in a year.
A prior EPI report noted that in 2013 four years before the average income of the top 1 percent in Oregon was $754,431, far below Parkers figure last year. The average income for everyone that year was $45,567.
Parkers pay ratio may actually be far higher. Nikes headquarters are in Portland, but its workforce making athletic shoes is in China.
Source: PAI