International Forecaster Weekly

CEO PAY FAR EXCEEDS EVERYDAY WORKER GAINS They Make 399 Times More!

Last fall, on a Financial Survival podcast, Discount Gold and Silver Trading CEO Melody Cedarstrom and I talked about a study showing that top CEOs made 399 times more than the average worker.

According to the Economic Policy Institute report, written by Josh Bivens and Jori Kandra, 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 and 70s. 

The average pay for top CEOs was $15.6 million in 2021, up about 10% over 2020.

The ratio of CEO-to-typical-worker compensation has grown to an astounding 399-to-1.

That’s 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 wage earners in the top 0.1% – almost seven times as much. 

In fact, from 1978-2021, CEO pay based on realized compensation grew by 1,460%. That far outstrips S&P stock market growth (1,063%) and top 0.1% earnings growth (385% between 1978 and 2020). 

On the other far side of the continuum, compensation for the everyday American worker grew by just 18.1% from 1978 to 2021.

CEO Pay vs. Layoffs Not a Good Optic

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Guest Writer | January 31, 2023

By Dave Allen for Discount Gold & Silver

Last fall, on a Financial Survival podcast, Discount Gold and Silver Trading CEO Melody Cedarstrom and I talked about a study showing that top CEOs made 399 times more than the average worker.

According to the Economic Policy Institute report, written by Josh Bivens and Jori Kandra, 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 and 70s. 

The average pay for top CEOs was $15.6 million in 2021, up about 10% over 2020.

The ratio of CEO-to-typical-worker compensation has grown to an astounding 399-to-1.

That’s 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 wage earners in the top 0.1% – almost seven times as much. 

In fact, from 1978-2021, CEO pay based on realized compensation grew by 1,460%. That far outstrips S&P stock market growth (1,063%) and top 0.1% earnings growth (385% between 1978 and 2020). 

On the other far side of the continuum, compensation for the everyday American worker grew by just 18.1% from 1978 to 2021.

CEO Pay vs. Layoffs Not a Good Optic

And now, as more companies are laying off workers ahead of the coming recession, not adjusting CEOs' hefty pay packages at the same time doesn't look so good, according to Mike Allen.

So, a slew – but not all of them by far – of big companies have begun cutting CEO pay as part of their belt-tightening.

For example, JPMorgan Chase awarded CEO Jamie Dimon $34.5 million in 2022 compensation – similar to the year earlier.

But Apple's Tim Cook is taking a 40% cut this year — to $49 million — "in response to shareholder feedback.”

Google's Sundar Pichai said he, alongside other executives, will take 2023 pay cuts, according to Fortune.

Morgan Stanley paid CEO James Gorman $31.5 million for his work in 2022, a 10% pay cut from the year before. 

Then there’s poor Goldman Sachs CEO David Solomon who got a 29% pay cut in 2022. His pay reportedly fell more than his Wall Street counterparts; he made $25 million last year.

More importantly, CEOs earn far more than the typical worker, and their pay, which often relies heavily on stock-related compensation, has grown much more rapidly than their working stiffs. 

Importantly, skyrocketing CEO pay doesn’t necessarily reflect a rising value of skills but rather their use of their power (i.e., control of a board of directors) to set their own pay. 

In economic terms, Bivens and Kandra say this means that CEO compensation reflects substantial “income in excess of actual productivity.” 

This is a big problem in terms of the overall growth of income inequality, because the growing earning power of CEOs has been driving income growth at the very top. 

On the other hand, they point out, “it also means that CEO pay can be curtailed without damaging economywide growth.”

Other Key Findings

Here are some other illuminating findings of the EPI report (even though they were first published last October, they’re still notably relevant and timely):

* Top CEO compensation grew 37% more than growth in the S&P 500 during this period and far eclipsed the modest 18.1% growth in a typical worker’s annual compensation. 

* While millions of Americans 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 period.

* The CEO-to-worker compensation ratio reached 399-to-1 in 2021, a new high. That stands 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. 

* The makeup of CEO pay is shifting away from the use of stock options and toward the use of stock awards. 

Vested stock awards and exercised stock options averaged nearly $22 million in 2021 and accounted for 80% of the average realized CEO compensation.

* Over the last three decades, compensation grew far faster for CEO compensation in 2020 was roughly 7 times higher than wages of other top 0.1% of wage earners.

* CEO compensation grew much faster than the earnings of the top 0.1% of wage earners. 

Yet, the inflation-adjusted annual earnings of the top 0.1% grew by 385% from 1978 to 2020. CEO compensation grew by nearly four times as much!

* Most importantly, the growing pay differential between CEOs and other top 0.1% earners suggests the growth of substantial income not related to a corresponding growth of productivity in CEO compensation. 

Rather, it seems to point to the power of CEOs to extract concessions — “a power that stems from dysfunctional systems of corporate governance in the United States.”

Keep these findings in mind over the coming year as you continue to read about corporate layoffs as the economy rides the bumpy road towards the edge of the cliff.