Chief executives at the US’s top companies took home $17.2m in pay last year – 278 times the salary of their average worker.
Between 1978 and 2018, the average pay of the bosses of the US’s largest 350 companies has grown by 1,007.5%, according to the Economics Policy Institute’s latest survey.
The increase far outstripped the typical worker’s salary growth, at 11.9%, and also the returns from the stock market, which are often used to justify high executive pay. The S&P 500 index of top US companies grew 706.7% over that period.
The analysis comes as some of the US’s richest businessmen have publicly worried about growing income inequality.
This year, Ray Dalio, billionaire founder of Bridgewater, the world’s biggest hedge fund, warned that the gap between rich and poor in the US was becoming a “national emergency”. JP Morgan’s chief executive, Jamie Dimon, has called for a “Marshall plan” to address a “systemic problem” that had left half of society “severely disadvantaged”.
Lawrence Mishel, EPI distinguished fellow, said there was a direct correlation between the outsized pay gains made by CEOs and the stagnant wages of their workforce given that there was little evidence linking the turbocharged growth in their wages and the performance of their companies.
“You could cut CEO pay in half and the economy would not be any different,” he said.
CEO compensation rose by 7.1% in 2018 and 9.2% in 2017, according to EPI. The rise has been driven by increasingly large awards of stock in the companies they run. On average, CEOs received $7.5m in stock awards in 2018, accounting for close to half their compensation.
While wages have stagnated for most workers since the end of the recession, growing at just 1.6% over the last year when accounting for inflation, the pay of the US’s top bosses has soared. CEOs who took advantage of the shares they were awarded have enjoyed a 52.6% pay rise since 2009. Those who were granted shares but have not yet cashed in saw their pay rise by 29.4%.
By contrast, the typical worker in one of these large firms has seen their annual compensation rise by just 5.3% over the course of the recovery and their wages actually fell by 0.2% between 2017 and 2018.
Average CEO pay peaked at $21.5m (in 2018 dollars) in 2000, the height of the late-1990s tech-driven stock market bubble, and it fell after the bubble burst. It had recovered again by 2007 only to dip again in 2008 and 2009 as the last recession took hold. Their compensation has been growing steadily ever since.
Over the long term, the gap between the average worker at one of the US’s top companies and their boss has widened dramatically. In 1965, the average CEO earned 20 times as much as the average worker at one of the US’s top 350 companies. By 1978, the ratio was 30-1. By 1991, it was 121-1.
While some shareholders and corporate governance groups have targeted executives at companies they believe are overpaid, Mishel said the easiest way to address the gap was to substantially increase taxes on top earners.
“It’s hard to do this one CEO at a time,” he said.