CEOs Make 273 Times the Average Worker

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Starbucks CEO Howard Schultz poses for the photographer during a press conference in Bangkok, Thailand.  Schultz was the seventh highest paid CEO of 2012. Schultz made $28.9 million. (AP Photo/Sakchai Lalit, File)
Starbucks CEO Howard Schultz poses for the photographer during a press conference in Bangkok, Thailand. Schultz made $28.9 million in 2012, making him one of the highest-paid CEOs that year. (AP Photo/Sakchai Lalit, File)

If you’re the CEO of a major company today, you make, on average, about 273 times more than the average worker. That’s according to a recent analysis by the Economic Policy Institute (EPI) of the CEO-to-worker pay ratio at top 350 firms. The average pay, EPI found, was $14.1 million in 2012, up 12.7 percent from 2011.

That’s a big change from a half-century ago. In 1965, the CEO-to-worker pay ratio was about 20-to-1, but it grew over the next three decades, and that growth picked up speed in the ’90s. It peaked in 2000 before the early 2000s recession, with a CEO-to-worker pay ratio of 383.4-to-1. It hit a lesser peak again in 2007, before the Great Recession, with a ratio of 351.3-to-1. During the recovery, CEO pay has been climbing upward once more. At the same time, for most Americans, wages have remained stagnant at best.

Economic Policy Institute

A separate analysis of a smaller group of CEOs — the top 200 chief executives at public companies with at least $1 billion in revenue — found a median pay package of $15.1 million, up 16 percent from 2011. That study, conducted by Equilar Inc., an executive compensation analysis firm, for The New York Times, found that the 200 CEOs in question also received “boatloads” of stock and options awards equal to an additional 60 percent of their pay. Gretchen Morgenson writes, “[s]o much for the idea that shareholders were finally getting through to corporate boards on the topic of reining in pay.”

At least the stock market returns generated by these companies last year exceeded the pay increases awarded to their chiefs. Still, at 19 percent in 2012, that median return was only three percentage points higher than the pay raise.

In other words, it’s still good to be king.

When Dodd-Frank was being formulated to rein in the excesses of the years before the 2007 crash, Senator Robert Menendez (D-N.J.) added a provision to the bill requiring that companies disclose their CEO-to-worker pay ratio in every SEC filing. The hope was that making this information public would encourage shareholders to keep executive pay in check.

But nearly three years after Dodd-Frank was signed into law, the Securities and Exchange Commission has yet to implement rules for pay ratio disclosure. Companies have long complained that it would be costly to calculate and accurately report their median worker’s pay, and have lobbied rigorously against it. Rep. Bill Huizenga (R-Mich.) introduced a bill in March, the Burdensome Data Collection Relief Act, stripping the provision from the law, with corporate complaints as justification. The House Committee on Financial Services advanced Huizenga’s bill to the House floor last month.

Regardless of whether the data is ever collected, stockholders may not care anyway. As the National Bureau for Economic Research noted in 2005, when executive compensation was climbing toward its most recent, pre-financial crisis peak, shareholders don’t complain about CEO pay when the stock market is doing well. “During a period of market booms, the demand for executives goes up and firms need to pay more in order to retain and hire executives,” the report’s authors wrote, citing earlier research. Later in the same report, they write, “a rising stock market, which affects even the market caps of poorly performing companies, provides most firms with a convenient justification for substantial pay increases. Furthermore, investors and other outsiders are generally less bothered by excessive and distorted pay arrangements when markets are rising rapidly.” The Atlantic’s Derek Thompson paraphrases: bull markets “make shareholders less likely to kick and shout when executives pull down one-year pay packages many hundreds of times more than their average workers. In other words, bull markets make CEOs fabulously wealthy, and they make shareholders indifferent to their fabulous wealth.”

So as corporate profits grow, so will CEO salaries, even as, for most Americans, wages stagnate or fall. The recovery continues for some, but not most, Americans.

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  • Curt Welch

    It should not be the responsibility of shareholders, or directors, to solve the social problems of income inequality in the world. It is there job, to run the most profitable business possible, and nothing else. If rewarding execs at 500 times the average worker is the best way to maximize profits, then they should do that.

    Expecting businesses to solve the social problem of income and wealth inequality, is a highly misplaced assignment of responsibility.

    Social problems are not solved by corporations, they are solved by our government. Small amounts of inequality has been solved by using progressive taxes, labor laws and laws supporting labor unions, and increasing amounts of social services and welfare. But as technology advances, and creates growing amounts of inequality, such as we see today with one small Family (the Walton’s) owning more wealth than the bottom 40% of society, these government programs we have been using clearly are not enough.

    The solution is to scrape many of these indirect government-bloating forms of equality balancing, and replace it with direct transfers of money in the form of a Basic Income Guarantee for the entire country – paid for by the “Job Creators”.

    Let the CEOs be paid 1000 times the workers, if the corporations believe that’s the best way for them to invest their money. But then tax the CEOs and corporate profits to pay for the Basic Income – in effect, forcing a small percentage of the wealth to be shared with everyone. This forces all industry to provide welfare support all the entire country, without us expecting industry to do it on their own, by paying higher wages to their workers.

    If industry provides “welfare” for it’s workers in the form of above market value wages, then we are not providing welfare equally to all of society – only the workers of that business get the welfare, instead of everyone in the society. People fall through the cracks (often the ones that need the most help) when we try to make business provide welfare on their own instead of letting business do what it should be doing – maximising shareholder value.

  • SteveB

    Run it on the full database.
    And if you MUST skew your sampling, then at least explain why these CEO’s aren’t worth as much as a ball player of a Kardashian.

  • http://www.facebook.com/profile.php?id=1314943480 Craig Hunt

    Not an effective graph. Shows ups and downs to an overall gentle rise. Average worker pay should be on one line, the CEO pay on the other. The average worker pay line will flat line, while the CEO pay, starting off respectable high will scream into the stratosphere.

  • Anonymous

    Great theory, assuming that our government is run by and for the people, instead of the reality of our government being run by and for corporations.

  • Chris

    Just to take you out of your very comfortable bubble for a minute. In the last 20 years there has been a political seismic shift in “who” controls government in the USA. Corporation lobbyists now sit alongside lawmakers and “help” write laws. (See ALEC -American Legislative Exchange Council) Laws that of course benefit the corporate agenda. Social policy is anathema to corporations and therefore any law that offers economic relief, incentives or benefits to the slave class will be defeated. The ordinary hard working american is now completely disenfranchised from a supposedly “democratic” system. The House is owned by corporate lobbyists. Wake up and smell the skunk weed.

  • Sue

    These articles make me so depressed, I could cry while reading them. What are we to do? Our politicians get (basically) bribed by the lobbyists, who do everything to benefit the super rich they work for, and the middle class Americans, (which is by far the majority of us) just feel helpless and hopeless for ours and our childrens’ future. How do we change this? It is like the rich and powerful are beating all of us down, and we don’t know how to stop them from continuing to do it. I wish there would be more articles telling us what we can do, (because writing our politicians does not help). Even President Obama said he wanted to help the middle class, but he cannot get much done when he has no support from the politicians, including many in his own party, who are getting rich along with the rest of them. Answers please, we need some answers!!!

  • Steve Bowlus

    “Companies have long complained that it would be costly to calculate and accurately report their median worker’s pay.”

    Horsefeathers. If this information can’t be obtained routinely to – say – two or three sig figs, the CFO should be fired. S/he obviously does not have a handle on the corporation’s labor costs, nor does s/he know squat about the corporation’s data/accounting systems.

  • Steve Bowlus

    It is odd that European and Japanese corporations manage to maintain profitability comparable to the US with much flatter salary structures.

    “Social problems are not solved by corporations …” Certainly this is true in the US. But corporations need not create social problems, which is closer to the situation we see here.

  • Meg Sloss

    Free Market Capitalism, government, industry, economics, individualism, unrelenting greed, blah, blah, blah blah.

    …..the glorification of material pursuits, at once the progenitor and common feature of all such ideologies, that we find the roots which nourish the falsehood that human beings are incorrigibly selfish and aggressive.

    That materialistic ideals have, in the light of experience, failed to satisfy the needs of mankind calls for an honest acknowledgement that a fresh effort must now be made to find the solutions to the agonizing problems of the planet. The intolerable conditions pervading society bespeak a common failure of all, a circumstance which tends to incite rather than relieve the entrenchment on every side. Clearly, a common remedial effort is urgently required. It is primarily a matter of attitude. Will humanity continue in its waywardness, holding to outworn concepts and unworkable assumptions? Or will its leaders, regardless of ideology, step forth and, with a resolute will, consult together in a united search for appropriate solutions?

    Those who care for the future of the human race may well ponder this advice. “If long-cherished ideals and time-honoured institutions, if certain social assumptions and religious formulae have ceased to promote the welfare of the generality of mankind, if they no longer minister to the needs of a continually evolving humanity, let them be swept away and relegated to the limbo of obsolescent and forgotten doctrines. Why should these, in a world subject to the immutable law of change and decay, be exempt from the deterioration that must needs overtake every human institution? For legal standards, political and economic theories are solely designed to safeguard the interests of humanity as a whole, and not humanity to be crucified for the preservation of the integrity of any particular law or doctrine.

  • Anonymous

    Yup. Every corporation knows EXACTLY how much is being paid in wages and benefits to employees in direct, indirect and deferred compensation. Otherwise, the would not know how to price products and calculate profits. This is a standard operating cost of ANY organization. Every business has to know these costs just to do payroll and to report tax information to the IRS…

  • Anonymous

    That graph is VERY effective as it is the RATIO of CEO pay to workers. That is, it starts with CEO’s making $20.1 for every $1 paid to workers (20.1:1) with options… and ends with $227.9 for every $1 paid to workers (225.9:1) with options.

  • Anonymous

    A full database of what? ALL U.S. firms? That would be pretty much impossible – so a representative sampling is used instead, as is the case with most such studies. What makes it skewed? The fact that only the “top 350 firms” were used in the analysis — and you would want, what? The top 1,000? The top 10,000?

    As to the rest of your comment… that is irrelevant. CEO pay is actually taking funds away from profits that should be leveraged for returning value to the shareholders by direct dividends to shareholders OR reinvesting in the company to spur productivity and growth. Paying a CEO more doesn’t do either except to line the CEO’s pocket with more wealth.

  • Anonymous

    Businesses are trying to throttle government to remove any authority of government to regulate or tax business in such a way that there will be no way for government to solve any problems involving social problems. Corporations only exist at the behest of government through charters granted them and part of that charter is supposed to (and originally conceived as) serve a public service beyond just to make a profit — and such charters were temporary.

    At some point in time, this changed and corporations became permanent entities with the rights of “natural people” under the laws, and, at the same time, they somehow divested themselves of any real need to serve any public service — though many corporate charters include mission statements with allude to such things, corporations are rarely held accountable to such statements. For the most part, any statements to do anything for the public good is mere marketing and PR except for a few corporations that seek to balance profit motive with people and community needs.

  • Curt Welch

    “But corporations need not create social problems, ”

    It would certainly be nice if they didn’t. But the fact is, they do. Japanese corporations are different because the Japanese people are different. Japan has a very different culture than the US. Their society demonizes individualism and worships community and social unity. The US is just the opposite, we worship individualism and demonize social unity. The world would be better if we all became more community focused like Japan is but making that happen is not easy.

    Corporations create social problems for very simple reasons. They act as intelligent agents with a goal of profit maximising – not a goal of protecting or caring for humans. Though they are run by humans, the humans become corrupted by the money the corporations pay them to “look the other way” in the name of profits. The corporations should be understood to be inherently evil forces exactly becuase they have anti-human motivations. But they are very useful structures – which is why they exist and carry such importance.

    But we must never lose site of their inherent evil nature, and make sure they always work for us, instead of us, ending up working for them. Corporations must remain our slaves. We keep them “caged up” and forced to work for us, by the power of our government, which is controlled by our people. But the recent Citizens United ruling shows how much the US has forgotten this, effectively giving corporations the power to vote with their money – taking the power away from the people – allowing the corporations, to control the very “police force” we set up to keep corporations under control and working for the people, instead of working against the people.

    This of course is only one of many such movements away from social responsibility and a very bad trend that is developing in the US. We must overturn Citizens United as a start.

    Corporations are ultimately controlled by the consumers that buy their goods and services. To give more power back to the people, make sure they have money to spend. This is what a Basic Income Guarantee does – it gives the people, a guaranteed minimum level of spending power which in turn, gives them a level of control over the corporations. It keeps the corporations working for the “people” instead of the corporations working only for the “rich”.

  • Curt Welch

    Yes, very true, we must remove corporate control from government. It’s a very dangerous trend which is developing. Overturn Citizens United. Implement election reforms. Do whatever it takes to remove corporate influence from our government.

  • Curt Welch

    Yes, but, there’s one party, that’s pro corporate control – the Republicans. They are the ones that time and time again, vote for lower corporate taxes, less government control of corporations, and more corporate power in government. The people still today, have the power to vote the pro-corporate, anti-people Replications out of office and fix this. But yet, they don’t do it. To suggest the government doesn’t “work” anymore, when clearly, we have the government the people voted for, is naive. If the people are too stupid to understand how dangerous it is to continue to let corporate influence of government grow like this, then the people are going to lose their country – and they will deserve to get what they have voted for.

  • Anonymous

    And their employees created every bit of it.

  • Mikeguru

    I own stock. In the annual report to shareholders, the salary of the CEO was listed as $2 million dollars of a Corporation of 300,000 plus employees world wide. I didn’t think about, figured that he was probably only worth that much. But then I read where Forbes and Fortune has this CEO listed at $20 million. So where was the $18 million coming from?
    I looked further into the Stockholder annual report and there was “performance service units” and “quarterly review of the “PSU” that were tied to compensation. The “PSU’s” we’re the company stock. So the quarterly evaluation was making sure the Compensation target of $18 million was met. If the price of the stock went up, shares might be lowered, but rest assured, if the stock price went down, the number of shares went up. The company, at every annual meeting it seems was “Buying back Stock” in the $billions. Most of the employees over the last 30 years averaged 4% where Executives saw 1000% increase. I found out by talking and listening to Executives that about 1% of all employees were paid 90% in stock.
    It sounds good, tying Stock to my 401k and IRA but then like a bolt of lightning, it hit me. The Stock of the Executives are taxed at Capital Gains rates of 15 to 20%. Not at Ordinary Income Taxes that 99% of the employees are taxed at the highest level of 39% and if you are CEO of a small company that has no stock, you miss out on this Tax Loophole” sweetheart deal of Capital Gains Tax rates.
    This well kept hushed up Secret is how, over 30 years the lousy wages of the 99% has gone to the highest paid in any public ally traded Corporation.
    Oh, just a reminder your 401k is taxed at ordinary income tax rates of 39% highest rate not the 15 to 20% Capial Gains rate Loophole.
    Surprised?
    We need to remove this Tax Loophole to get our Financial house in order but rest assured the “Job Creators of 60,000 manufacturing jobs Offshore will spend $Billions fighting against plugging this Loophole.

  • Mikeguru

    What to do? We, the non-rich have the power. But we need to get off our behinds, meet with like minded that want to do something about this. The first objective should be to get rid of the bribery and the long term elected who have driven Congress to a 90% disapproval.
    The last group to rise up was the Occupy group but Homeland Security intimidated many. We have to ignore the intimidation and get active.
    Politics and the courts have got us in this mess, they can get us out of it but it will not happen until we turn off the TV, stop escaping into DVD rentals, and hit the streets.
    We out number them and they know it. The people, the 99% have the Political power, we just need to exercise it.
    If you look back in history of our country, sitting on the couch never resulted in any change. Action did.

  • William Butterman

    progressive income tax like back in the 50′s with a sharp upward curve when you get past 2 million would be a nice start

  • William Butterman

    good point so lets just tax all the uber rich at a higher level

  • Anonymous

    Unfortunately, I think the people ARE too stupid, or ignorant, or apathetic, or vote based on a single controversial issue (like pro-life, gun control, pro-Constitutionalism). They are getting what they voted for, and the rest of us have to pay for it along with them. But even that is somewhat of a moot point, because no matter what a congressman promises or advocates when they are running for office, they almost invariably vote along party lines once they are elected. And for the Republicans, the votes are consistently pro-Corporate America.

  • http://www.facebook.com/profile.php?id=1314943480 Craig Hunt

    Thanks for all the capitalization, Al. It really helps. I understood the graph represents the RATIO. The graph of the RATIO is exactly as I described it. The inequity measured by the RATIO is better documented in this graph:

    http://billmoyers.com/content/the-triggers-of-economic-inequality/

  • Leigh Carlson Burgess

    A comment someone posted: “It should not be the responsibility of shareholders, or directors, to solve the social problems of income inequality in the world.”

    My response: Since they are complicit in this vast societial problem, then I would say they have a moral obligation to take note and do something to lessen this inequity, which is causing the downfall of the middle class in America, the very group that actually WORKS to make all these billions for these smug elites.

  • Anonymous

    Thank-you. Yes your graph makes the point much more clearly. Worker wages have been frozen, all of the gains are made by management. Worker wages don’t even account for inflation as the middle (and lower) classes slowly drown.

  • Anonymous

    Hmmm… usually there’s a big revolution with violence and bloodshed… frankly and for purely selfish reasons I would rather not see that scenario played out (again).

  • Joyce

    This is not new, during the 80′s (Reagan era) is when this atrocity began. It amazes me as many praise Reagan when he followed Nixon in the greed behavior. While working for a major corporation from 1970 to 1996 the money for CEO’s was growing by leaps and bounds.
    Look at Cheney (Haliburton), Wall Street CEO’s, VP’s, and Enron they money received was shameful as others lost everything, no one was held accountable.

  • Joyce

    This story is not uncommon globally, the wealthy never wants to pay taxes; even more, it is what I call their I, My, ME, and MINE syndrome. Outsourcings created mega millionaires (Clinton’s NAFTA/CAFTA) that have one thing in mind, the bottom line which is wealth.

  • Joyce

    Look at the graph, the greed began rising during Reagan and gained speed following him closing military bases, ensuring his wealth ‘pals’ could privatize these bases once closed. Warehouse workers hired worked for low wages to add to the CEO’s/Presidents earnings.

  • Sue

    I would start that sharp upward curve way before $2 million. How about starting it with $200,000 and up. I cannot even fathom what it must be like to make $150,000 per year. Most Americans I know make somewhere between $40,000 to $100,000 per year. I think they need to lower our tax rates, and up those above $200,000. I could live like a queen on $150,000 per year!

  • Sue

    Mike: Have you started a group? Tell me when and where? If I can find someone to take care of my teenage son; two shots a day, diabetic dog; hard working husband; elderly mother, etc., get enough money for the gas necessary at $4 per gallon, maybe I will make it. It isn’t that we are all too lazy, we are all too damn busy trying to make ends meet just to stay afloat! I wish people that have the time and money would go and represent all of us! I would be happy to be their loudest cheerleader!

  • http://www.facebook.com/profile.php?id=1314943480 Craig Hunt

    You are welcome! What working people don’t understand is that all the proceeds of increased worker productivity have gone to the wealthy. All of it.

  • Anonymous

    I guess it is easy to do when you are always telling people to tighten their belts because its a recession. Even easier to do when people are stressed, tired, resigned and constantly on survival mode.

    …and don’t even get me started on the free flow of information in our corporate culture.

  • kate

    We need to start voting with our pocketbooks and boycotting these companies who profit off the backs of their underpaid employees. Can you give up your Starbucks coffee? It’s too strong anyway and caffeine contributes to stress and irritability. I would like to propose that we pick a day during the year where we collectively all decide to stay home, not go to work, not drive, not use the internet, just sit in our living rooms and discuss with others how to make this world a more equitable and peaceful place to live. A place where natural resources and human lives are treated with respect and not exploited so a handful of CEOs can become multimillionaires.

  • incredible

    morals lol there are no morals, WAKE UP look around you!!! morals you all make me laugh. all your for fathers are ROLLING in their graves of what we have become herein N America

    Just go back to sleep and dream of your vacation house in Bahamas i;ll go back and watch my friends and neighbors cry at night as they can;t afford their groceries, gas for their cars. SHAMEFUL!!!!!

    BILL GATES >>>>???? the only mensch I can think of!

  • Geo

    Most disturbing is how even with Democratic majorities and a Democrat in the White House – Liberal and Progressive causes continue to SUFFER! No concern for Poverty. No concern for Racism. No concern for Age Discrimination. No concern for Working Families. No concern of saving Public Schools. No concern for the Average Working American Worker! When will American Workers WAKE UP and VOTE OUT all Republicans! Vote OUT any Democrat that Half-Steps and does not wholly support American WORKERS!!! Dismantling the Bush Tax cuts should have been the #1 Priority of the 2008 Obama White House and Democratic Congress … but NO – they (Democrats) too were pocketing loads of cash! The problem is clearly on both sides of the aisle (hence the Clinton Era NAFTA crap) – we have got to stop the Corporate Give Away Train – NOW!

  • Anonymous

    Since they are directly responsible for people going on food stamps and msdical assistance, they should be required to pay for it. That is company and Ceo

  • NotARedneck

    Unfortunately, the fact is, these overpaid CEOs don’t create wealth, jobs or long term secure returns for shareholders. The are only good at selling themselves to board members – who were often appointed by them – manipulating the stock price and evading corporate taxes.

    Perhaps you believe that bribing RepubliCON congress members deserves high remuneration?

  • NotARedneck

    “they almost invariably vote along party lines once they are elected.”

    No. They vote for the corporate interests that bought them.

  • ThinkingCritically

    Exactly! Either that or have the gov’t step in and tell you how to pay your employees… Their choice.

    (Hint: They should probably do it themselves, if they like capitalism.)

  • Curt Welch

    If we create an income tax on everyone, that is either flat, or progressive, and use that money to supply a basic income for everyone in the country, then it simply doesn’t matter at all what the CEO is paid. If he’s paid 100 million a year, and the Basic Income tax is 70% at the level, then 70 million of that income goes to the people and the CEO only ends up with 30 million. If the corporation can afford to pay the CEO 100 million, then great, the people get 70 million of it. The people get more than the CEO and the people win.

    Getting money out of politics is a separate question. We most definitely need to limit how much money is spent by the rich to control our government. The citizens united ruling was the the absolutely stupidest mistake this country has ever made. However, with a strong Basic Income, we will be reducing inequality, by taking money away from the rich, and giving it to he poor – which gives the poor more leverage to make their own political contributions – so even without major election reforms, a Basic Income will reduce the damage being done to our democracy by the super rich.

    At the same time, the more equality we have in consumer spending power due to a Basic Income, the more the corporations themselves will feel the need to cater to their customer base – which will include stronger spending by the middle and lower classes and weaker spending by the upper classes due to the BI redistributing some of the wealth and power.

    The fundamental problem with government being bought by the rich, is not the money, but the fact that there is such large levels of inequality across the population, which means some people have so much power to buy the government. If there was no inequality, and everyone had the exact same income to work with, using your money to support your political view would not be nearly so bad, due to the fact that everyone had the option to invest their money that way if they wanted to. But when some individuals have millions of times more economic power to spend on the government than others, the government stops being a democracy.

  • schrapnel

    “CEOs Make 273 Times the Average Worker” (subtitle 1?) and seeing no problem with it (subtitle 2?) and thinking they deserve it.

  • NotARedneck

    ” If the corporation can afford to pay the CEO 100 million, then great”

    Great for whom? The fact is, these ridiculously excessive compensation packages are paid for by the consumers paying too much and the rank and file employees getting less and less every year. Meanwhile, they often evade much of the tax that they should be paying. Meanwhile, what is “received” for this compensation is a CEO who looks out for himself first and manipulates the “results” to maximize his bonus and minimize the company’s long term prospects.

  • Curt Welch

    “Great for whom?” — Great in the sense it doesn’t matter what they CEO is paid, if everyone in the country is getting a Basic Income Guarantee. With the BI, the corporations can’t get away with paying workers “too little”. The workers simply will not bother to work, if the corporations aren’t willing to pay a fair wage (fair meaning large enough to entice workers to work instead of live on their BI alone). At the same time, the CEO getting a huge salary, is also taxed with a healthy income tax, to fund the BI – so the workers of the country, get a healthy chunk of the money the corporation tried to pay to the CEO. The more they raise the CEO salary or bonus package, the higher the BI tax they pay, so a fair share of the money ends up in the pockets of the workers anyway. A basic income, when funded by income and corporate profit taxes, guarantees the “workers” are getting their fair share of the wealth being produced by the corporations.