Commentary, News

Trumponomics: CEO pay surging as average Americans continue to struggle

Not that it comes as any particular surprise in the era of Trump, but there’s a new report out from analysts at the Economic Policy Institute that documents a remarkable new surge in pay for American CEO’s in 2017.

The report finds that:

“…in 2017 the average CEO of the 350 largest firms in the U.S. received $18.9 million in compensation, a 17.6 percent increase over 2016. The typical worker’s compensation remained flat, rising a mere 0.3 percent. The 2017 CEO-to-worker compensation ratio of 312-to-1 was far greater than the 20-to-1 ratio in 1965 and more than five times greater than the 58-to-1 ratio in 1989 (although it was lower than the peak ratio of 344-to-1, reached in 2000). The gap between the compensation of CEOs and other very-high-wage earners is also substantial, with the CEOs in large firms earning 5.5 times as much as the average earner in the top 0.1 percent.”

Analysts attribute part of the surge to cashed-in stock options, but it goes on to note that:

“CEO compensation has grown far faster than stock prices or corporate profits. CEO compensation rose by 979 percent (based on stock options granted) or 1,070 percent (based on stock options realized) between 1978 and 2017. The corresponding 637 percent growth in the stock market (S & P Index) was far lower. Both measures of compensation are substantially greater than the painfully slow 11.2 percent growth in the typical worker’s compensation over the same period and at least three times as fast as the 308 percent growth of wages for the very highest earners, those in the top 0.1 percent.”

Of course, the bottom line is that this is an obscene situation that demands public policy solutions. As EPI explains:

Regardless of how it is measured, CEO pay continues to be very, very high and has grown far faster in recent decades than typical worker pay. Higher CEO pay does not reflect correspondingly higher output or better firm performance. Exorbitant CEO pay therefore means that the fruits of economic growth are not going to ordinary workers. The growth of CEO and executive compensation overall was a major factor driving the doubling of the income shares of the top 1 percent and top 0.1 percent of U.S. households from 1979 to 2007. Since then, income growth has remained unbalanced. Profits and stock market prices have reached record highs while the wages of most workers have continued to stagnate.

Over the last several decades, CEO pay has grown much faster than profits, the pay of the top 0.1 percent of wage earners, and the wages of college graduates. CEOs are getting more because of their power to set pay, not because they are more productive or have special talents or more education. If CEOs earned less or were taxed more, there would be no adverse impact on output or employment.

How we can solve the problem: Policy solutions that would limit and reduce incentives and the ability of CEOs to extract economic concessions without hurting the economy include the following:

  • Reinstate higher marginal income tax rates at the very top.
  • Set corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation.
  • Set a cap on compensation and tax anything over the cap.
  • Allow greater use of “say on pay,” which allows a firm’s shareholders to vote on top executives’ compensation.”

Click here to check out the full report.

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