The pay gap between the CEOs of major corporations and their rank and file workers has continued to widen, maintaining a trend of inequitable wage growth that has been ongoing since the 1990s. A new Economic Policy Institute report showed CEOs of America’s top 350 companies earned 312 times more than their rank and file workers.
According to a report summary in The Guardian, CEOs of major corporations got an average pay rise of 17.6% over the last year while rank-and-file employee compensation rose just 0.3% over the same time. The latter saw their wages stall, for the most part, while CEOs took home an average of $18.9 million in compensation, according to the report.
Not surprisingly, this divergence in pay is the continuation of a trend that started back in the 90s:
The pay gap has risen dramatically, with some fluctuations, since the 1990s. In 1965 the ratio of CEO to worker pay was 20-to-one; that figure had risen to 58-to-one by in 1989 and peaked in 2000 when CEOs earned 344 times the wage of their average worker.
CEO pay dipped in the early 2000s and during the last recession but has been rising rapidly since 2009. Chief executives are even leaving the 0.1% in the dust. The bosses of large firms now earn 5.5 times as much as the average earner in the top 0.1%.
Recently there has been added visibility on this pay gap since companies have been forced to report it in their financials. This has highlighted some extraordinarily egregious pay gaps, such as at those at McDonald’s and Walmart:
The astronomical gap between the remuneration of workers and bosses has been brought into sharper focus by a new financial disclosure rule that forces companies to publish the ratio of CEO to worker pay. Last year McDonald’s CEO Steve Easterbrook earned $21.7m while the McDonald’s workers earned a median wage of just $7,017 – a CEO to worker pay ratio of 3,101-to-one. The average Walmart worker earned $19,177 in 2017 while CEO Doug McMillon took home $22.8m – a ratio of 1,188-to-one.
It’s not just the pay difference with the rank and file that has exploded: the average pay gap between CEOs and other very high wage earners has also grown substantially, and CEOs in large companies making 5.5x more than the average earner in the top 0.1%
The self-fulfilling prophecy of rising CEO compensation, which is estimated to partly be a result of the stock market’s rise and “everybody thinking their CEO is better than the next one”, according to Lawrence Mishel, a distinguished fellow at the Economic Policy Institute, has now pushed the rising compensation rate to outgrow the rise in the stock market.
Between 1978 and 2017 CEO compensation has increased by 979%. Over the same period the S&P 500 Index of the US’s largest companies grew 637%.
At the same time, the Guardian article notes, while the S&P 500 index was up 637% from 1978 to 2017, the typical rank and file worker only saw their pay package rise just 11.2%.
The report fails to discuss the role monetary policy has had in creating this enormous pay gap; it also ignores the “virtuous circle” of stock buybacks and executive compensation, which is usually pegged to stock price milestones, incentivizing the C-suite to lever up the company just to achieve a faster cash out while burdening what’s left of the company with excess debt that could lead to an accelerated bankruptcy during a recession or when rates spike. By then, of course, the CEO – sporting an overflowing bank account – will be long gone.
Meanwhile, as the government selectively chooses to bail out those that are “too big to fail”, the average rank-and-file worker sees little to no benefits of such a policy. Under the selective bailout, crony-capitalist Keynesian system as it exists today, this data just continues to prove that it is easier for the rich to keep getting richer while ordinary workers remain stuck unable to reap any benefits.
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