Average CEO compensation at the top 350 U.S. firms grew 14% to $21.3 million on average, according to an analysis from the Economic Policy Institute (EPI), a think tank based in Washington, D.C.
From 1978 to 2019, CEO compensation grew by 1,167%; the compensation of a typical worker, meanwhile, rose 13.7%.
“While wage growth for the majority of Americans has remained relatively stagnant for decades, CEO compensation continues to balloon,” said authors of the report EPI Distinguished Fellow Lawrence Mishel and Research Assistant Jori Kandra. “This has fueled the spectacular income growth of the top 0.1% and 1.0% and the growth of income inequality overall.”
The ratio of CEO-to-worker compensation was 320-to-1 in 2019, up from 293-to-1 in 2018 and a big increase from 21-to-1 in 1965. The report focuses on a “realized” measure of CEO compensation including exercised stock options, vested stock awards and salary, bonuses, and long-term incentive payouts.
Over the last several decades, CEO pay has grown much faster than corporate profits, the pay of the top 0.1% of wage earners, and the wages of college graduates. CEO pay largely corresponds with the overall stock market rather than being tied to the performance of individual firms
“This huge growth in CEO pay is not a reflection of the market for talent,” said Kandra. “We know this because CEO compensation has grown more than three times faster than the growth of earnings for the top 0.1% of earners, which was 337% over the same period.”
In recent years, CEO compensation has been driven by stock awards and cashed-in stock options. Vested stock awards alone accounted for nearly half of all CEO compensation in 2019.
Because the decision to realize, or cash in, stock options tends to fluctuate with current and potential stock market trends (as people tend to cash in their stock options when it is most advantageous to do so), Mishel and Kandra also look at another measure of CEO compensation, tracking the value of stock options and stock awards at the time they are granted. This measure, “CEO granted compensation,” was $14.5 million in 2019, up 8.6% from 2018 and 1,033% greater than in 1978.
The authors name several policy solutions that would reduce the ability of CEOs to extract increasingly higher pay—without hurting the overall economy—including:
- Reinstating higher marginal income tax rates at the very top of the income ladder
- Setting corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation
- Capping compensation and tax anything over the cap
- Allowing greater use of “say on pay,” which allows a firm’s shareholders to vote on top executives’ compensation