Escalating CEO pay in the U.S.: Is it worth it?

Bill Knight column for Thurs., Fri., or Sat., May 2, 3 or 4


In the last 30 years, CEOs have gone from being well-paid (more than 40 times the pay of everyday workers) to being ridiculously enriched. In the United States, CEO compensation now averages hundreds of times the pay of regular working people.

Is it worth it?

Is it worth it to their companies and shareholders?

To their industry and the economy?

To the country and society?

After all, CEO pay doesn’t happen in a vacuum. Their compensation comes from corporate revenues (rather than using those revenues to pay dividends to stockholders) and from company employees (what’s used for a CEO cannot go toward paying rank-and-file or middle management workers).

So, such enrichment of a few happens because workers, shareholders and, arguably, companies themselves all sacrifice.

AFL-CIO President Richard Trumka noted that since 1982, the CEO/worker pay gap has jumped from 42 times more than the average rank-and-file worker to 2012’s record 354 times greater.

That’s an 8-fold increase in 30 years.

In real dollars, a CEO of a Standard and Poor’s 500 Index company averaged $12.3 million a year in total compensation, while the average rank-and-file worker earned $36,654.

“Runaway CEO pay is fueling economic inequality in the U.S. and undermining our shared prosperity,” Trumka said. “In addition, high levels of CEO pay can encourage excessive risk by CEOs, which hurts the long-term prospects of the companies they run.”

Consumer advocate Ralph Nader scolded CEOs who benefit at the expense of their owners.

“They’re stashing $1.7 trillion overseas in tax havens instead of paying dividends to their rightful shareholder-owners, which would stimulate our economy?” Nader asked. “Shareholders? Are those the people who have been stripped of their rights as owners and prohibited from even keeping a lid on staggeringly sky-high executive salaries ranging from $5,000 to $20,000 an hour or more, plus perks?”

Nicole Aro of the AFL-CIO added, “It’s not just out-of-control pay that these top executives enjoy. Many are getting tens of millions of dollars in golden retirement nest eggs in the form of bloated pensions and massive compensation packages. For example, David Cote, CEO of Honeywell, will retire super-comfortably with more than $134 million to use toward expenses in his later years.”

Economist Dean Baker of the Center for Economic and Policy Research in Washington, said, “The CEOs of large successful companies elsewhere, like Samsung, Toyota and Siemens, get by on a fraction of the pay of their less successful counterparts in the United States.”

Indeed, the stark differences between U.S. CEOs and counterparts overseas seems to show that the disparity between the executive suite and the shop floor isn’t part of the natural order of a free-market system. CEOs’ outrageous pay is more likely a result of the success of CEOs’ political and financial power and the failure of corporate governance in U.S. corporations.

Asian and European corporations often have large institutional shareholders who actively police the conduct and pay of top executives, whereas American CEOs are “governed” by cronies usually allied with top management, buddies who are themselves well-paid for coming to a handful of meetings and toeing the line.

Again, U.S. CEOs make 354 times more than their employees – and a lot more than their peers in similar-sized foreign corporations. For example, compare the average annual U.S. CEO pay ($12.3 million) and average worker pay ($36,000) to a few comparable developed economies:

Australia – $4.1 million CEO avg.; $45,000 worker avg.

France – $3.9 million CEO avg.; $38,000 worker avg.

Japan – $2.3 million CEO avg.; $35,000 worker avg.


“In France, the newly elected government of President François Hollande has placed a 450,000 euro cap — about $580,000 — on executive pay at the 52 companies where the French government holds a majority stake,” wrote Sam Pizzigati of the Institute for Policy Studies. “This cap will essentially limit executives at these publicly controlled companies to no more than 20 times the pay of their lowest-paid workers.”


For details, see the AFL-CIO’s “Executive Paywatch”: www.aflcio.org/Corporate-Watch/CEO-Pay-and-You

[PICTURED: Illustration from ThinkProgress.org]