Posts Tagged ‘CEOs’

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The CEO-to-worker pay ratio is on the rise again, according to the Economic Policy Institute, after falling in the immediate aftermath of the financial crash of 2008. That’s both because corporate executives are able to capture more and more surplus and workers’ continues to stagnate.

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.

According to more recent numbers, reported by Gretchen Morgenson, that ratio can be 1,073 (for Starbucks), 1,111 (for Qualcomm), 2,012 (for Microsoft), and even 2,238 (for Walt Disney). To be clear, that means Walt Disney CEO Robert Iger pulled in 2,238 times the median workers’ pay (estimated to have been $19,530 last year) at Walt Disney.

Here, according to the most recent figures (from Equilar) is the list of the top 25 highest-paid CEOs in the country.

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As it turns out, crows are even smarter than we thought possible.

And CEOs at large U.S. companies have collectively captured more in compensation than we thought possible.

According to Reuters [ht: ja], 300 CEOs who served throughout the 2009-2013 period at S&P 500 companies together realized about $22 billion in compensation—that’s $6 billion more in compensation than initially estimated in annual disclosures—in the form of pay, bonuses and share and option grants, or an average of $73 million each.

To put those numbers in perspective, the AFL-CIO estimates that, in 2013, the CEO-to-worker pay ratio was 331:1.* That ratio was 46:1 in 1983, 195:1 in 1993, 301: 1 in 2003.

Like any ratio, the result depends on both the denominator and the numerator. The CEO-to-worker pay ratio has grown because, during the 2009-2013 recovery, workers’ wages have remained roughly unchanged while CEO compensation has soared. Thus, the combination of falling unemployment, growing productivity, and higher corporate profits and stock prices we’ve seen in recent years hasn’t helped workers but only the owners and executives of the corporations where they work.

“The numbers can be obscene, particularly when you look at the general challenges we face as an economy and society,” said Matthew Benkendorf, a portfolio manager at Vontobel Asset Management, which oversees about $50 billion.

We’ve long known that crows are pretty clever. Remember Aesop’s famous fable “The Crow and the Pitcher”? The thirsty crow drops pebbles into a pitcher with water near the bottom, thus raising the fluid level high enough to permit the bird to drink.

Do we really need to be any more clever to figure out that—as CEO compensation continues to grow, leaving workers and everyone else further and further behind—existing economic institutions have failed us and need to be replaced?

*The CEO-to-minimum-wage-worker pay ratio in 2013 was, of course, much higher—774:1

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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.