According to recently released data, CEOs and executives in the United States have been recovering well since the end of the recession, while most workers are being left even further behind. The Economic Policy Institute released a study today documenting compensation in 2013 for CEOs at the top 350 firms in the United States. Their data is especially valuable because it provides a consistent historical series of CEO pay trends back to 1965.
In 2013, compensation for the average CEO (using a measure that includes the value of stock options that were realized during the year) was $15.2 million, an increase of 2.8 percent over the year and more than 20 percent since 2010.
Over the long term, pay for these top executives has soared and is now 937 percent higher than in 1978. This pay escalation was much faster than both the growth of the stock market and income of other high-wage earners, signaling that the extreme increases in CEO pay are not due to improving CEO productivity but because significant rents are embedded in executive compensation.
Meanwhile, the compensation of a typical worker has only grown by 10.2 percent since 1978. While CEO pay increased more than 20 percent since 2010, inflation-adjusted typical worker compensation has actually fallen slightly. To put this in perspective, we look to the CEO-to-worker compensation ratio, which measures the gap between CEO pay at the top 350 U.S. companies and the compensation of the workers in the industry of each respective CEO.
In 2013, the CEO-to-worker compensation ratio was 295.9-to-1, meaning that top executives made nearly 300 times the amount their average workers earned. The 2013 ratio is far above the ratio in 1965 (20-to-1), 1995 (122.6-to-1) and last year (278.2-to-1).
While data availability and sample size issues do not allow us to compute this measure at the state level, local sources have started to look at CEO pay for some companies that are headquartered in Pennsylvania. For example, the Pittsburgh Post-Gazette has begun compiling the “Fortunate 50,” a list of compensation for highly-paid executives at firms headquartered in the Pittsburgh area.
While the Post-Gazette’s measure of compensation is computed using slightly different methodology than the EPI study (most notably, the value of stock options realized during the year is not included), compensation for area executives averaged $5.7 million, down about 15 percent over the year.
However, if the options-realized value was included, it is likely that these executives would have seen a jump in pay that’s comparable to the national increase detailed in the EPI study. In fact, according to this table from the Post-Gazette, Pittsburgh executives took advantage of the rebounding stock market and exercised millions of dollars in stock options in 2013, some cashing in more than $15 million.
Average worker pay (not compensation) grew 2.4 percent over the year in the Pittsburgh metro area. Again, accounting for the stock options that executives in the area realized this year would likely show that executive pay growth in Pittsburgh, as in the nation, is far outpacing average worker wages. Skyrocketing CEO compensation is one of the largest contributors to runaway income inequality in both the state and the nation.