[ CEOs were paid 399 times as much as a typical worker in 2021]
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CEO PAY HAS SKYROCKETED 1,460% SINCE 1978  
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Josh Bivens and Jori Kandra
October 4, 2022
Economic Policy Institute
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_ CEOs were paid 399 times as much as a typical worker in 2021 _

, Thomas Nast

 

WHAT THIS REPORT FINDS: Corporate boards running America’s largest
public firms are giving top executives outsize compensation packages
that have grown much faster than the stock market and the pay of
typical workers, college graduates, and even the top 0.1%. In 2021, we
project that a CEO at one of the top 350 firms in the U.S. was paid
$27.8 million on average (using a “realized” measure of CEO pay
that counts stock awards when vested and stock options when cashed in
and ownership is taken). This 11.1% increase from 2020 occurred
because of rapid growth in vested stock awards. Using a different
“granted” measure of CEO pay (which counts the value of stock
awards and options when announced (or “granted” rather than
realized), average top CEO compensation was $15.6 million in 2021, up
9.8% since 2020. In 2021, the ratio of CEO-to-typical-worker
compensation was 399-to-1 under the realized measure of CEO pay; that
is up from 366-to-1 in 2020 and a big increase from 20-to-1 in 1965
and 59-to-1 in 1989. CEOs are even making a lot more than other very
high earners (wage earners in the top 0.1%)—almost seven times as
much. From 1978 to 2021, CEO pay based on realized compensation grew
by 1,460%, far outstripping S&P stock market growth (1,063%) and top
0.1% earnings growth (which was 385% between 1978 and 2020, according
to the latest data available). In contrast, compensation of the
typical worker grew by just 18.1% from 1978 to 2021.

WHY IT MATTERS: Exorbitant CEO pay is a contributor to rising
inequality that we could restrain without doing any damage to the
wider economy. CEOs are getting ever-higher pay over time because of
their power to set pay and because so much of their pay (more than
80%) is stock-related. They are not getting higher pay because they
are becoming more productive or more skilled than other workers, or
because of a shortage of excellent CEO candidates. This escalation of
CEO compensation and of executive compensation more generally has
fueled the growth of top 1% and top 0.1% incomes, leaving fewer of the
gains of economic growth for ordinary workers and widening the gap
between very high earners and the bottom 90%. The economy would suffer
no harm if CEOs were paid less (or were taxed more).

HOW WE CAN SOLVE THE PROBLEM: We need to enact policy solutions that
would both reduce incentives for CEOs to extract economic concessions
and limit their ability to do so. Such policies could include
reinstating higher marginal income tax rates at the very top; setting
corporate tax rates higher for firms that have higher ratios of
CEO-to-worker compensation; using antitrust enforcement and regulation
to restrain the excessive market power of firms—and by extension of
CEOs; and allowing greater use of “say on pay,” which allows a
firm’s shareholders to vote on top executives’ compensation.

Introduction

Chief executive officers (CEOs) of the largest firms in the U.S. earn
far more today than they did in the mid-1990s and many times what they
earned in the 1960s or 1970s. They also earn far more than the typical
worker,1 [[link removed]] and
their pay—which relies heavily on stock-related compensation—has
grown much more rapidly than a typical worker’s pay. Importantly,
rising CEO pay does not reflect a rising value of skills but rather
CEOs’ use of their power to set their own pay. In economic terms,
this means that CEO compensation reflects substantial “rents”
(income in excess of actual productivity). This is problematic since
the growing earning power of CEOs has been driving income growth at
the very top—a key dynamic in the overall growth of inequality. But
it also means that CEO pay can be curtailed without damaging
economywide growth.

Key findings

* GROWTH OF CEO COMPENSATION (1978–2021). Using the realized
compensation measure, compensation of the top CEOs increased 1,460.2%
from 1978 to 2021 (adjusting for inflation). Top CEO compensation grew
roughly 37% faster than stock market growth during this period and far
eclipsed the slow 18.1% growth in a typical worker’s annual
compensation. CEO granted compensation rose 1,050.2% from 1978 to
2021.
* GROWTH OF CEO COMPENSATION DURING THE PANDEMIC (2019–2021). The
dramatic increase in CEO compensation during the pandemic is
remarkable. While millions lost jobs in the first year of the pandemic
and suffered real wage declines due to inflation in the second year,
CEOs’ realized compensation jumped 30.3% between 2019 and 2021.
Typical worker compensation among those who remained employed rose
3.9% over the same time span.
* CHANGES IN THE CEO-TO-WORKER COMPENSATION RATIO (1965–2021).
Using the realized compensation measure, the CEO-to-worker
compensation ratio reached 399-to-1 in 2021, a new high. Before the
pandemic, its previous peak was the 372-to-1 ratio in 2000. Both of
these numbers stand in stark contrast to the 20-to-1 ratio in 1965.
Most importantly, over the last two decades the ratio has been far
higher than at any point in the 1960s, 1970s, 1980s, or early 1990s.
Using the CEO granted compensation measure, the CEO-to-worker
compensation ratio rose to 236-to-1 in 2021, significantly lower than
its peak of 393-to-1 in 2000 but still many times higher than the
44-to-1 ratio of 1989 or the 15-to-1 ratio of 1965.
* CHANGES IN THE COMPOSITION OF CEO COMPENSATION. The composition of
CEO compensation is shifting away from the use of stock options and
toward the use of stock awards. Vested stock awards and exercised
stock options averaged $21.9 million in 2021 and accounted for 80.1%
of the average realized CEO compensation.
* CHANGES IN THE CEO-TO-TOP-0.1% COMPENSATION RATIO. Over the last
three decades, compensation grew far faster for CEOs than it did for
other very highly paid workers (the top 0.1%, or those earning more
than 99.9% of wage earners). CEO compensation in 2020 (the latest year
for which data on top wage earners are available) was 6.88 times as
high as wages of the top 0.1% of wage earners, a ratio 3.7 points
greater than the 3.18-to-1 average CEO-to-top-0.1% ratio over the
1947–1979 period.
* IMPLICATIONS OF THE GROWTH OF CEO-TO-TOP-0.1% COMPENSATION RATIO.
The fact that CEO compensation has grown far faster than the pay of
the top 0.1% of wage earners indicates that CEO compensation growth
does not simply reflect a competitive race for skills (the “market
for talent”) that also increases the value of highly paid
professionals more generally. Rather, the growing pay differential
between CEOs and top 0.1% earners suggests the growth of substantial
economic rents (income not related to a corresponding growth of
productivity) in CEO compensation. CEO compensation, it appears, does
not reflect the greater productivity of executives but the specific
power of CEOs to extract concessions—a power that stems from
dysfunctional systems of corporate governance in the United States.
Because so much of CEOs’ income constitutes economic rent, there
would be no adverse impact on the economy’s output or on employment
if CEOs earned less or were taxed more.
* GROWTH OF TOP 0.1% COMPENSATION (1978–2020). Even though CEO
compensation grew much faster than the earnings of the top 0.1% of
wage earners, that doesn’t mean the top 0.1% did not fare well.
Quite the contrary. The inflation-adjusted annual earnings of the top
0.1% grew 385% from 1978 to 2020. CEO compensation, however, grew
nearly four times as fast!
* CEO PAY GROWTH COMPARED WITH GROWTH IN THE COLLEGE WAGE PREMIUM.
Over the last three decades, CEO compensation increased more relative
to the pay of other very-high-wage earners than did the wages of
college graduates relative to the wages of high school graduates. This
finding indicates that the escalation of CEO pay does not simply
reflect a more general rise in the returns to education.

To read the full report, click here.
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* CEO Pay
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* Wage Theft
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