Our view: The rapid growth of top executive pay and the stagnant compensation provided most everyone else is a worrisome pattern that will only worsen without government intervention
Last week, the Economic Policy Institute released a report that found the average compensation for the CEOs of the 350 largest companies in the United States averaged $18.9 million last year — a 17.6 percent increase over the previous year. That was boosted, in part, by a robust stock market, which likely motivated some to sell stock options they might have been holding onto for years. But even setting aside sales of stock options, it was a record year for the captains of industry with average pay at $13.3 million, according to the survey.
Under different circumstances, such news would be cause for celebration. After all, who doesn’t want the nation’s top executives to prosper (aside from the covetous, perhaps)? But as the same EPI report notes, CEO compensation is rising faster than either stock prices or profits. And the excessive compensation has been leaving workers far, far behind. Not only do CEOs earn many times the salaries of typical workers — growing from a 20-to-1 ratio in 1965 to 344-to-1 by 2000) but now they’re doing multiple laps around the wealthy, too. CEOs now earn about 5.5 times as much compensation as the richest 0.1 percent of Americans, the institute found.
Americans are taking note. While by many measures, the nation’s economy is performing quite well right now, that success is simply not being felt in average U.S. households where paychecks aren’t much changed from five years ago, let alone since last year, and the hardships of mortgage payments, health care and education and consumer debt weigh heavily. Instead, it’s created a greater awareness of haves and have-nots. This dichotomy has not only helped drive the Donald J. Trump political wave and its signature nativist anger at immigrants, foreign trade and the political “establishment” (not to mention softened the GOP view on autocrats) perceived as denying middle class prosperity, it’s also fueling a leftward move among Democrats who have (well before New York’s Alexandria Ocasio-Cortez made her mark as a Democratic Socialist this year) been raising the minimum wage and promoting paid sick leave at the state level to appeal to the working poor as well as the middle class.
Still, it doesn’t require a Bolshevik to recognize the status quo is not a sustainable pattern. CEO pay isn’t simply a matter of supply-and-demand, it’s clearly a problem exacerbated by tax policies and corporate governance structures that were not on the books five decades ago. It is not an assault on capitalism to recognize that something is fundamentally wrong here. It would be a disservice to future economic prosperity to ignore what has become a growing cancer. Minimum wage boosts, paid leave or state-backed retirement savings plans adopted in recent years by blue states are helpful around the edges, but more fundamental changes are needed.
The Economic Policy Institute offers four basic policy paths: Reinstate higher marginal income taxes for the ultra-rich, raise corporate tax rates for those firms that have off-the-charts CEO compensation (relative to their average worker compensation), set a cap on compensation and tax salary and benefits that exceed that level, and, finally, require corporations to give shareholders a chance to vote on top executive compensation. In other words, if companies need astronomic pay to attract the best and brightest, let them make the case to the shareholders who certainly want to see the company be profitable (if not necessarily pillaged by its CEO).
No doubt conservatives will see this as class warfare and they’d be absolutely correct. There is class warfare and the CEO’s have been winning handily. Will U.S. corporate competitiveness fall off a cliff if the top boss made just 100 times more than his company’s employees instead of 200? How many mansions in the Hamptons and corporate jets does one person need? How many other problems are tied to this imbalance in pay? Would partisan quarreling be as bad, would racism and hate groups be in as much ascent, or would neighborhoods beset by concentrated poverty in places like Chicago and Baltimore be as dangerous if people could simply afford to feed, clothe and shelter their families? The economic recovery is seriously unbalanced and needs to be righted before it fuels a social upheaval that will put the 1960’s to shame.
Become a subscriber today to support editorial writing like this. Start getting full access to our signature journalism for just 99 cents for the first four weeks.