The pay of top CEOs from the 350 largest companies in the US has increased by 54.3 percent from 2009, to an average of $16.3 million per year – six times greater than that of the top 0.1 percent of wage earners, according to new study.
According to the study by the progressive think tank Economic Policy Institute, $53,200 was the average annual salary of the worker in 2009 and it has remained stagnant at this number to this day.
“CEO compensation in 2013 (the latest year for data on top wage earners) was 5.84 times greater than wages of the top 0.1 percent of wage earners, a ratio 2.66 points higher than the 3.18 ratio that prevailed over the 1947–1979 period,” said the institute’s article published alongside the study.
The study was criticized for conspicuously excluding average CEOs from the data set – since only the CEOs of the 350 largest companies are included in the data set, it is essentially only examining the very highest paid CEOs in the country, while ignoring the rest who would paint a fuller picture.
“We can get a more accurate and complete picture of CEO compensation in the US by looking at wage data released recently by the Bureau of Labor Statistics,” American Enterprise Institute scholar Mark Perry published on AEI’s website. “The BLS reports that the average pay for America’s 246,240 chief executives was only $180,700.”
Lawrence Mishel of the Economic Policy Institute responded to this, arguing that the critique was “clever but misguided” due to Perry was being dishonest with statistics in his own way.
“Amazingly, roughly 16 percent of the CEOs in Perry’s preferred measure are in the public sector. Many others are in the nonprofit sector, including CEOs of religious organizations, advocacy groups, and union.” He continues, “The reason to focus on the CEO pay of the largest firms is that they employ a large number of workers, are the leaders of the business community, and set the standards for pay in the executive pay market and probably in the nonprofit sector as well (e.g., hospitals, universities).”
Mishel doesn’t specify what just percentage of the CEOs would have been included Perry’s data set if non-profit and public sector employees were excluded.
The pay of a CEO is determined by the company’s board of directors, who are in turn elected by the shareholders – the owners of the company. This means that the CEO pay is kept in check by shareholders naturally wanting profits to go to them, not to the pockets of the manager that they hired.
One of the reasons that CEO pay is increasing because they are paid in the shares of their companies, rather than just receiving salaries. Earlier in the year, stock markets around the world grow broke records, meaning that the compensation correspondingly grew.
A 2005 study showed that shareholders are content to see their CEO’s pay balloon during bull markets, as long as they are sharing in the wealth. Today, the majority of a CEO’s compensation comes in the form of company stock.
The 2010 Dodd-Frank Act was written stipulation requiring companies to provide information on the CEO pay ratio to their investors, who are, in the case of publicly listed companies, the general public. The Securities Exchange Commission has not decided how to implement this yet, so the regulation has never actually taken effect.
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