In 2016, CEOs at America’s largest firms made, on average, 271 times more than the average US worker. Fifty years ago, that ratio was 20-to-1.
The CEO-to-worker pay ratio, calculated annually by the Economic Policy Institute, a progressive think tank, has narrowed slightly in recent years; in 2014, it was 299-to-1. But it has grown by an order of magnitude since the Bureau of Labor Statistics started keeping data in the 1960s, and has even doubled many times over since the late 1980s, when it was 59-to-1.
In the early 1990s, CEO pay started climbing; CEOs began making hundreds of times what the average American worker made, and continue to do so today.
Part of this had to do with the increasing popularity of performance pay. The Clinton administration put in place a rule that barred corporations from deducting more than a million dollars of CEO compensation from their taxes, but that rule excluded performance pay and stock options. Corporate boards of directors took notice.
Reagan-era tax cuts for the rich also encouraged CEO pay to balloon throughout the 90s, as did a growing stock market.
None of these factors had the same impact on workers’ wages, and while CEO pay skyrocketed, the earnings of the average American inched only slightly upward. “What we really have is a big increase in income going to a certain occupation, but it’s not met by a corresponding growth in output for the nation and for the firms,” said Lawrence Mishel, the president of the Economic Policy Institute and one of the authors of the report. “These folks are getting income that otherwise would go to other people, the rest of the workforce.”
“What it really means is that if you cut CEO pay there would be no reason to expect that the economy would be one iota smaller,” said Mishel.
In their calculation, Mishel and co-author Jessica Schieder compared CEO compensation to that of the average American. But the Dodd-Frank Financial Reform Act, passed to rein in Wall Street following the 2008 financial crisis, would require companies to disclose a number that would be particularly useful to shareholders at these large corporations: the ratio between their CEO’s compensation and the median compensation for the workers that that CEO employs. Making this data public would also allow anyone with a calculator to easily pinpoint the worst offenders — the CEOs collecting the highest wages at the lowest-paying corporations.
Unsurprisingly, some corporations aren’t pleased about this component of Dodd-Frank. The rule hasn’t yet gone into effect, and lobbyists have been working hard to make sure it never does. Last winter, Michael Piwowar, a longtime opponent of the rule, took the helm of the Securities and Exchange Commission, serving as acting chair while Congress considered Trump’s nominee, Jay Clayton. He quickly delayed the rule and encouraged corporations to tell him about any “unexpected challenges” they encountered in complying with it.
Piwowar’s decision prompted an angry letter from Senate Democrats including Dick Durbin, Al Franken, Elizabeth Warren and Bernie Sanders, who pointed out that Piwowar had only asked for input from the corporations themselves, but not the corporation’s investors.
“Pay ratio disclosure helps investors evaluate the relative value a CEO creates, which facilitates better checks and balances against insiders paying themselves runaway compensation,” the senators wrote. “Similarly, when a CEO asks for a raise while giving other employees a pay cut, investors should have this information.”