Top CEO pay has increased by 54% since 2009
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.
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“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.