CEO salaries reaching new heights, but where does that leave workers? And do CEOs really deserve to make so much more than their workers? Questions, however, only serve as a reminder of the vast economic disparities that persist.
It’s no secret that the rich keep getting richer while the rest of us struggle to make ends meet. But when the wage growth rate of CEOs and workers is widening, too, it becomes a troubling signal of a system that rewards excess over effort.
In today’s corporate world, executives, particularly CEOs, have become the poster children for income disparity. The average CEO of an S&P 500 company earns 350 times more than the average worker within their organization. In 2000, this pay ratio was a relatively modest 42:1.
To be specific with the exorbitant numbers, the median CEO now takes home an annual salary exceeding $15 million, while the median worker’s income stagnates at a mere $45,000.
Here are the stats on CEO-worker compensation at Big Three automakers:
| Company | CEO Salary | Median Worker Salary | CEO-Worker Pay Ratio |
|---|---|---|---|
| General Motors | $29 million | $80,034 | 362-to-1 |
| Ford | $21 million | $74,691 | 281-to-1 |
| Stellantis | $24.8 million | $67,789 | 365-to-1 |
The Complicit Committees and the Escalating Crisis
One would naturally assume that compensation committees, entrusted with the responsibility of overseeing executive pay, would act as a counterbalance. However, these committees, in many cases, have seemingly lost sight of their core duty – protecting the interests of shareholders and ensuring fairness in compensation practices.
Executive Remuneration: It is not uncommon for CEOs themselves to be part of these committees, which oversee the distribution of their own compensation. This self-interest often results in extravagant compensation packages, laden with stock options and performance-based rewards, even in years of mediocre company performance. In 2019, Oracle’s board sanctioned a $103 million pay package for CEO Mark Hurd, with Hurd himself being a part of the compensation committee that approved it. Similarly, Walmart, in the same year, greenlit a $23.6 million pay package for CEO Doug McMillon, with McMillon actively participating on the committee that determined his own compensation.
Compensation Benchmarking: Companies habitually justify their executive pay by benchmarking it against industry peers. However, this practice has inadvertently created a self-perpetuating cycle of excess, whereby CEO compensation inflates as companies strive to outdo one another. A prevailing viewpoint among experts is that organizations should center their executive pay decisions on internal benchmarks, reflecting their unique performance and objectives, rather than external market practices.
Income Segregation in the Corporate World
Income segregation within the corporate sphere is a poignant illustration of this phenomenon. It’s not merely about high figures, but the ever-widening chasm between the elite and the average worker. While CEOs bask in the opulence of their compensation, their employees grapple with stagnant wages.
CEO pay, according to an Economic Policy Institute report, surged by 1,322% between 1978 and 2020, far outpacing S&P stock market growth (817%) and the earnings growth of the top 0.1% (341%). But the typical worker’s compensation only grew by 18.0% during this period. The report also highlights the vast gulf between CEO and top 0.1% earnings, reaching 3.81 times the 1989 ratio, equivalent to the combined earnings of four high-income earners. The logarithmic CEO-to-0.1% income ratio surged by 90 log points from 1989 to 2019. Another report from the same institute shows CEO pay increased by 1,460% from 1978 to 2021, surpassing S&P growth (1,063%) and top 0.1% earnings growth (385%). Worker compensation grew by just 18.1% in the same timeframe.
Wage Equity Imbalance
Media and public discourse tend to focus on more sensationalized aspects of income inequality, such as the growing wealth gap between the super-rich and the rest of society. The struggles of the bottom 1% receive less attention because they lack the celebrity and high-profile status associated with billionaires. The topic, for example, is often discussed in terms of the gender or racial wage gap. But it is the bottom 1% of income earners who face one of the most severe and overlooked disparities in our economic landscape. In this group of marginalized individuals, chiefly characterized by low-wage and hourly workers, income levels barely meet the ever-increasing cost of living. As a result, they are often trapped in a cycle of financial instability and limited upward mobility.
Will the rate slow down?
Narrowing down the gap between executives and the average worker looks like a far-fetched dream. As of now, reducing the gap in the rate of growth of salaries and benefits remains a formidable challenge. If the typical worker’s salary grew by 18% vs CEOs’ whooping 1322% during the same timeframe of 45 years, the trajectory seems unyielding. The enduring dominance of executive compensation, marked by exponential increases, raises questions about whether this trend will decelerate. In the absence of systemic changes and greater accountability, it’s uncertain if the rate of executive salary growth will slow down anytime soon.
