In recent decades, the pay of CEOs in the U.S.’ largest companies has skyrocketed. The increase doesn’t necessarily match their contributions to the company’s growth, but it does however reflect their power to set their salaries.
Inequality on the Rise
Most alarming is that the rising CEO pay is contributing to widening inequality in America.
The Surge in CEO Compensation
Since 1978, the pay of top CEOs has gone up by a staggering 1,209% when adjusted for inflation.
This jump is mainly due to stock options and stock awards, making up the bulk of their compensation.
Stocks Over Salaries
Interestingly, this rate of growth is 28.1% faster than the growth of the stock market during the same period.
In contrast, the average worker’s pay has only increased by 15.3% since 1978, plainly illustrating the widening gap between the CEO and the average worker.
Comparing CEO Pay to the American Worker
The ratio of CEO-to-worker pay has also ballooned over the years.
In 1965, for every dollar an average worker made, a CEO made 21 dollars.
Sky-High Ratios
In 2022, that ratio has leapt to a shocking 344-to-1. Even when looking at different measures, such as granted compensation, the ratio still stands at a staggering 221-to-1.
Changes in Pay Structure
In 2006, about 70% of a CEO’s pay came from stock options. Fast forward to 2022, and stock options make up just 34% of their compensation.
Less Risk, More Reward
The rest comes from stock awards. This change means that CEOs are less dependent on the company’s stock performance for their income.
On average, in 2022, stock-related pay was $20.5 million, making up 81.3% of a CEO’s total income.
Breaking Away From High Earners
Even among the highest-paid workers in the country, CEOs are pulling away.
From the 1950s to the 1970s, the pay of a CEO was around 3.6 times that of the top 0.1% of earners.
CEO Pay: A League of Its Own
Now, it’s 7.68 times higher. This indicates that the increase in CEO pay isn’t about the so-called “race for talent” but more about CEOs using their power to get higher paychecks.
The Impact on Inequality
While some may dismiss the issue of soaring CEO compensation as symbolic and irrelevant to the average worker, evidence suggests otherwise.
The astronomical salaries of CEOs in top companies set a standard that impacts executive pay in smaller public firms, private companies, and even major nonprofits like hospitals and universities.
Trickle-Up Economics at Work
This “trickle-up” effect plays a significant role in driving the income of the top 1% and 0.1% even higher, exacerbating inequality across the board.
Average Workers Shortchanged
Furthermore, the bloated paychecks of CEOs and other top executives take away from the income pool that could be distributed to other workers.
The Hidden Cost of CEO Mega-Salaries
Research indicates that if wage inequality hadn’t widened between 1979 and 2021, wages for the bottom 90% of earners would be 25% higher today.
In short, the sky-high pay of CEOs isn’t just a problem for them and their companies; it’s an issue that affects income distribution and inequality at a societal level.
Possible Solutions
The solution lies in policies that limit CEOs’ power to set their own astronomical pay.
These could include higher tax rates for top earners, allowing shareholders to vote on CEO compensation, and tighter regulations on large companies.
A Call for Policy Change
This increasing pay gap between CEOs and average workers is a growing concern that contributes to income inequality.
Policy changes are needed to curb this trend and create a more balanced earning structure in the U.S.
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The post The Soaring Salaries of CEOs Are Fueling Inequality and Widening the Income Gap first appeared on Wealthy Living.
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