Posts Tagged ‘CEOs’

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estimatedandideal

 

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Americans have no idea how unequal the distribution of income is. At the same time, they want a distribution of income that is much more equal than it currently is.

According to a new study by Sorapop Kiatpongsan and Michael I. Norton [pdf], where they looked at the estimated and ideal pay ratios of CEOs and unskilled workers, American respondents estimated the ratio of estimated incomes of CEOs to unskilled workers to be 29.6, whereas the actual ratio was about 354 (based on the fact that the average yearly compensation for CEOs of S&P 500 companies in 2012 was $12.3 million while the average worker received about $35,000). Their ideal pay ratio was only 7.

In other words, Americans think that CEOs should receive about 7 times what the average worker brings home, imagine that the actual ratio is much higher (by a factor of about four), while the actual ratio is far higher than either what they think it is (by a factor of twelve) and what the ideal would be (by a factor of over fifty).

As it turns out, Americans are not alone.

Using survey data from 40 countries (N = 55,238), we compare respondents’ estimates of the wages of people in different occupations – chief executive officers, cabinet ministers, and unskilled workers – to their ideals for what those wages should be. We show that ideal pay gaps between skilled and unskilled workers are significantly smaller than estimated pay gaps, and that there is consensus across countries, socioeconomic status, and political beliefs for ideal pay ratios. Moreover, data from 16 countries reveals that people dramatically underestimate actual pay inequality.

The task, of course, is to figure out how to close the enormous gap between the actual level of inequality and what people think the amount of inequality should be. We can start by giving workers more say in running the enterprises where they are employed.

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hourly wages-1979-2013

According to the Economic Policy Institute [pdf],

For all but the highest earners, hourly wages have either stagnated or declined since 1979 (with the exception of a period of strong across-the-board wage growth in the late 1990s). Median hourly wages rose just 6.1 percent (or 0.2 percent annually) between 1979 and 2013, compared with a decline of 5.3 percent (or -0.2 percent annually) for the 10th percentile worker (i.e., the worker who earns more than only 10 percent of workers). Over the same period, the 95th percentile worker saw growth of 40.6 percent, for an annual gain of 1.0 percent.

During that same period, productivity in the U.S. economy grew 64.9 percent.

annual wages-1979-2012

Only the “wages” of the top 1 percent (when measured in terms of real annual wages) surpassed the growth of productivity. The cumulative change in the wages of all other groups was less.

In other words, most of the growing amount of value produced by American workers wasn’t paid back to them in the form of wages but, instead, was either retained by their employers or distributed to a tiny group of CEOs and managers at the top.

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Online Education twostatesol_1_590_432

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Posted: 13 June 2014 in Uncategorized
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CEO-worker

In charting the amount of the surplus that ends up in the hands (or, if you prefer, pockets or bank accounts) of CEOs, the Economic Policy Institute finds that:

  • Average CEO compensation was $15.2 million in 2013, using a comprehensive measure of CEO pay that covers CEOs of the top 350 U.S. firms and includes the value of stock options exercised in a given year, up 2.8 percent since 2012 and 21.7 percent since 2010.
  • From 1978 to 2013, CEO compensation, inflation-adjusted, increased 937 percent, a rise more than double stock market growth and substantially greater than the painfully slow 10.2 percent growth in a typical worker’s compensation over the same period.
  • The CEO-to-worker compensation ratio was 20-to-1 in 1965 and 29.9-to-1 in 1978, grew to 122.6-to-1 in 1995, peaked at 383.4-to-1 in 2000, and was 295.9-to-1 in 2013, far higher than it was in the 1960s, 1970s, 1980s, or 1990s.
  • If Facebook, which they exclude from their data due to its outlier high compensation numbers, were included in the sample, average CEO pay was $24.8 million in 2013, and the CEO-to-worker compensation ratio was 510.7-to-1.