The rise in executive pay shown in the report by the Economic Policy Institute, a left-leaning think tank, is driven largely by the big increases in the stock market during the past year. The bulk of CEO compensation is made up of stock grants or stock options, which can lead to substantial paydays for chief executives when companies perform well in the market. The Standard & Poor’s stock market index jumped 14.5 percent in value from 2016 to 2017 when adjusting for inflation, EPI said.
From 2009 to 2017, average pay for the nation’s CEOs jumped by $7.8 million, or by 72 percent, according to the report. During that period, the average wages and benefits for a typical American worker rose from $53,400 to $54,600, or by about 2 percent, the report said.
“It speaks to the degree the economic recovery is unbalanced,” said Larry Mishel, an economist who has tracked the CEO-worker pay ratio for two decades and co-authored the report with Jessica Schieder.
EPI’s $18.9 million figure is an average of CEO compensation among the 350 largest U.S. companies and includes the value that CEOs have realized from stock options, as well as salary, bonus, restricted stock grant awards and other long-term incentive payouts, the report said.
As a result, that figure appears different from other analyses about CEO pay. A CEO pay report done by the executive compensation research and governance firm Equilar for the Associated Press, for example, found a median pay increase of 8.5 percent in 2017, to $11.7 million. The AP’s analysis used a median figure, looked at 339 executives and included the value of stock options on the day they were granted.
The finding comes as experts have pointed to skyrocketing wealth inequality as a growing public policy problem in the nation, with the richest Americans pocketing a disproportionate share of the economic growth.
The richest 5 percent of Americans have captured 74 percent of the wealth created in the country from 1983 to 2010, according to a report by the Economic Policy Institute. Another report from the Institute for Policy Studies, a left-leaning think tank, found that the richest 400 Americans control more wealth than the poorest 80 million U.S. households, and similar research has found the top 1 percent now holding 40 percent of the nation’s wealth.
EPI’s report does not reflect the impact of the Republican tax package signed into law by President Trump in fall 2017. Critics say the tax law is likely to exacerbate growing inequality, as it dramatically slashed taxes on corporations and wealthy estates, while Republican proponents say it will usher in robust economic growth that will lift wages for most workers.
The EPI study is based on the compensation of CEOs at 350 publicly held companies, so it leaves out CEO pay at giant nonprofits, such as executives at some major hospitals, as well as privately held companies, such as Koch Industries.
But the research helps explain the growth of incomes for the rich, given that higher incomes for executives and those in the financial sector accounted for about 60 percent of the expansion in incomes top the top 1 percent between 1979 and 2005, Mishel said.
“They are, by far, the biggest factors driving up the huge increase we have seen for the top 1 percent,” Mishel said.
The gap between CEO and worker pay was larger in 2000 and 2007, reaching a ratio of 344 to 1 in 2000 and 327 to 1 in 2007, compared with 312 to 1 in 2017. But Mishel argued that fact should provide small comfort, because the 2000 gap was fueled by a tech bubble that later burst, while the 2007 gap preceded the worst economic catastrophe in a half-century.
The Securities and Exchange Commission requires companies to calculate and publish their own CEO-to-worker pay ratio as part of the 2010 Dodd-Frank banking law passed after the Wall Street crash. Unlike the EPI data, the SEC’s CEO-to-worker pay ratio includes essentially all of the companies' workers, domestic and international. (There are some exceptions, and the company can exclude some of its foreign workers, per the SEC rule.)
Investors often shrug off high CEO compensation. Shareholders have the opportunity to vote on the CEO’s pay package — something called “say on pay” — but the votes are nonbinding, and it is relatively rare for CEOs to see much fewer than 90 percent of investors approve their compensation. At annual meetings held in 2018, the average vote by investors in favor or CEO compensation packages was nearly 91 percent, and just 51 CEOs out of those at 2,116 companies saw only a minority of shareholders approve their pay, according to ISS Analytics, the data intelligence arm of proxy adviser Institutional Shareholder Services.
But others say the wide gap is a reflection of U.S. laws that unjustly privilege managers over workers. In many countries in Europe, the salary gap between CEOs and their employees is less than half of what it is in the United States. The CEO-worker pay ratio is about 94 to 1 in the United Kingdom, 91 to 1 in France, 71 to 1 in the Netherlands and 40 to 1 in Sweden, according to a report by the Executive Remuneration Research Center at Vlerick Business School in Belgium.
“They have stronger labor unions over there, which makes a difference,” said Steven Kyle, an economics professor at Cornell University. “Also, when you have socialists governing, they’re going to jump up and down about these things. And, obviously, we don’t have that.”