“Trickle-Up” Economy?: A Staggering 1,209% Pay Rise for CEOs

In recent decades, the pay of CEOs in the U.S.’ largest companies has skyrocketed. This increase doesn’t match their contributions to the company’s growth but reflects their power to set their salaries. 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. 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.

The ratio of CEO-to-worker pay has also ballooned over the years.

A Shocking Leap

 In 1965, for every dollar, an average worker made, a CEO made 21 dollars. 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. These figures leave little doubt as to the disparity with the typical worker.

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. The rest comes from stock awards. 

Breaking Away from High Earners

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.

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.

 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. 

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 short-changed

Furthermore, the bloated paychecks of CEOs and other top executives take away from the income pool that could be distributed to other workers. 

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.

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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Source: EPI