CEOs were paid 351 times as much as a typical worker in 2020
What this report finds: Corporate boards running America’s largest public firms are giving top executives outsize compensation packages that have grown much faster than the stock market and the pay of typical workers, college graduates, and even the top 0.1%. In 2020, a CEO at one of the top 350 firms in the U.S. was paid $24.2 million on average (using a “realized” measure of CEO pay that counts stock awards when vested and stock options when cashed in rather than when granted). This 18.9% increase from 2019 occurred because of rapid growth in vested stock awards and exercised stock options. Using a different “granted” measure of CEO pay, average top CEO compensation was $13.9 million in 2020, slightly below its level in 2019. In 2020, the ratio of CEO-to-typical-worker compensation was 351-to-1 under the realized measure of CEO pay; that is up from 307-to-1 in 2019 and a big increase from 21-to-1 in 1965 and 61-to-1 in 1989. CEOs are even making a lot more than other very high earners (wage earners in the top 0.1%)—more than six times as much. From 1978 to 2020, CEO pay based on realized compensation grew by 1,322%, far outstripping S&P stock market growth (817%) and top 0.1% earnings growth (which was 341% between 1978 and 2019, the latest data available). In contrast, compensation of the typical worker grew by just 18.0% from 1978 to 2020.
Why it matters: Exorbitant CEO pay is a major contributor to rising inequality that we could safely do away with. CEOs are getting more because of their power to set pay and because so much of their pay (more than 80%) is stock-related, not because they are increasing their productivity or possess specific, high-demand skills. This escalation of CEO compensation, and of executive compensation more generally, has fueled the growth of top 1.0% and top 0.1% incomes, leaving less of the fruits of economic growth for ordinary workers and widening the gap between very high earners and the bottom 90%. The economy would suffer no harm if CEOs were paid less (or were taxed more).
How we can solve the problem: We need to enact policy solutions that would both reduce incentives for CEOs to extract economic concessions and limit their ability to do so. Such policies could include reinstating higher marginal income tax rates at the very top; setting corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation; use of antitrust enforcement and regulation to restrain firms’—and by extension, CEOs’—excessive market power; and allowing greater use of “say on pay,” which allows a firm’s shareholders to vote on top executives’ compensation.
Introduction
Chief executive officers (CEOs) of the largest firms in the U.S. earn far more today than they did in the mid-1990s and many times what they earned in the 1960s or 1970s. They also earn far more than the typical worker, and their pay—which relies heavily on stock-related compensation—has grown much more rapidly than a typical worker’s pay. Importantly, rising CEO pay does not reflect rising value of skills, but rather CEOs’ use of their power to set their own pay. In economic terms, this means that CEO compensation reflects substantial “rents” (income in excess of their actual productivity). This is problematic since this growing earning power of CEOs has been driving income growth at the very top, a key dynamic in the overall growth of inequality.
https://www.epi.org/publication/ceo-pay-in-2020/
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