Report: How CEO Compensation Is Fueling Inequality

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Common Dreams

Report: How CEO Compensation Is Fueling Inequality

CEOs were paid 231 times more than workers in 2011.

by
Common Dreams staff

(cartoon by Khalil Bendib)

New analysis from the Economic Policy Institute (EPI) details how massive compensation to CEOs is driving inequality.

“CEOs have fared far better than the typical worker, the stock market and the U.S. economy as a whole since the late-1970s,” EPI President Lawrence Mishel said. “Compensation growth for executives and for top-tier financial-sector workers has fueled the enormous growth of incomes at the top.”

According to the new analysis from EPI, on average, CEOs were paid a staggering 231 times more than workers in 2011. In contrast, in 1965, CEOs were paid 20 times more than workers.

The analysis also shows that CEO compensation increased more than 725 percent from 1978 to 2011, while worker compensation only grew by 5.7 percent during the same period.

EPI writes in its ssue brief: "Just as wage inequality is a key driver of income inequality, a key driver of wage inequality is the growth of chief executive officer earnings and compensation and the expansion of and high compensation in the financial sector"

EPI's analysis CEO pay and the top 1%: How executive compensation and financial-sector pay have fueled income inequality, is part of “The State of Working America, 12th Edition,” to be released in August.

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CEO pay and the top 1%: How executive compensation and financial-sector pay have fueled income inequality
Lawrence Mishel and Natalie Sabadish, EPI

Growing income inequality has a number of sources, but a distinct aspect of rising inequality in the United States is the wage gap between the very highest earners—those in the upper 1.0 percent or even upper 0.1 percent—and other earners, including other high-wage earners. Driving this ever-widening gap is the unequal growth in earnings enjoyed by those at the top. The average annual earnings of the top 1 percent of wage earners grew 156 percent from 1979 to 2007; for the top 0.1 percent they grew 362 percent (Mishel, Bivens, Gould, and Shierholz 2012). In contrast, earners in the 90th to 95th percentiles had wage growth of 34 percent, less than a tenth as much as those in the top 0.1 percent tier. Workers in the bottom 90 percent had the weakest wage growth, at 17 percent from 1979 to 2007.

The large increase in wage inequality is one of the main drivers of the large upward distribution of household income to the top 1 percent, the others being the rising inequality of capital income and the growing share of income going to capital rather than wages and compensation (Mishel and Bivens 2011). The result of these three trends was a more than doubling of the share of total income in the United States received by the top 1 percent between 1979 and 2007 and a large increase in the income gap between those at the top and the vast majority. In 2007, average annual incomes of the top 1 percent of households were 42 times greater than in­comes of the bottom 90 percent (up from 14 times greater in 1979), and incomes of the top 0.1 percent were 220 times greater (up from 47 times greater in 1979). [...]

  • The significant income growth at the very top of the income distribution over the last few decades was largely driven by households headed by someone who was either an executive or was employed in the financial sector. Executives, and workers in finance, accounted for 58 percent of the expansion of income for the top 1 percent and 67 percent of the increase in income for the top 0.1 percent from 1979 to 2005. These estimates understate the role of executive compensation and the financial sector in fueling income growth at the top because the increasing presence of working spouses who are executives or in finance is not included.
  • From 1978 to 2011, CEO compensation increased more than 725 percent, a rise substantially greater than stock market growth and the painfully slow 5.7 percent growth in worker compensation over the same period.
  • Using a measure of CEO compensation that includes the value of stock options granted to an executive, the CEO-to-worker compensation ratio was 18.3-to-1 in 1965, peaked at 411.3-to-1 in 2000, and sits at 209.4-to-1 in 2011.
  • Using an alternative measure of CEO compensation that includes the value of stock options exercised in a given year, CEOs earned 20.1 times more than typical workers in 1965, 383.4 times more in 2000, and 231.0 times more in 2011.

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