Bruce Murphy
Murphy’s Law

CEO Pay Has Risen 1,167% Since 1978

That’s 85 times faster than rise in average workers’ pay, new report finds.

By - Aug 20th, 2020 09:26 am
Fiserv CEO Jeffrey Yabuki speaking at the Fiserv Forum ribbon cutting. Photo by Jack Fennimore.

Fiserv CEO Jeffrey Yabuki speaking at the Fiserv Forum ribbon cutting. File photo by Jack Fennimore.

The rich are getting richer. And richer.

A new report by the liberal Economic Policy Institute shows that CEO compensation at the top 350 companies in America grew to $21.3 million in 2019, which was $2.6 million or 14 percent higher than in 2018.

With dips after both the internet stock bubble collapsed in 2000 and the Great Recession of 2008, CEO pay has bounced back and continued upward and was was 1,167 percent higher in 2019 than in 1978. During this same period there was “a painfully slow 13.7% growth in the typical worker’s compensation,” the report found.

In short CEO pay during this four-decade period rose 85 times faster than an average worker’s pay.

As a result the CEO-to-average-worker pay ratio was 320-to-1 in 2019, which was “far higher than the ratios in earlier years: 118-to-1 in 1995, 61-to-1 in 1989, 31-to-1 in 1978, and 21-to-1 in 1965,” the report found.

Just before the Great Recession that ratio was even higher, at 330 to 1, but it dropped to about 200 in 2010 only to bounce back up since then. CEO compensation grew 105.1 percent from 2009 to 2019, the report found. “In contrast, typical workers in these large firms saw their average annual compensation grow by just 7.6% over the last 10 years.”

Compensation data at salary.com shows top Milwaukee CEOs did very well in 2019, led by Jeffery Yabuki, whose total compensation was $27.6 million, well above the average at the top 350 companies. Past analysis has shown the Milwaukee CEOs tend to earn less only because their companies are smaller, with compensation proportionate to corporation size.

Top Milwaukee CEO Compensation in 2019 

Jeffery W. Yabuki Fiserv, Inc. $27,601,026
Jonas Prising ManpowerGroup, Inc. $12,545,932
Blake Moret Rockwell Automation, Inc. $12,000,000
Matthew S. Levatich Harley-Davidson, Inc. $11,100,000
Michelle D. Gass Kohl’s Corp. $8,983,392
J. Kevin Fletcher WEC Energy Group, Inc. $5,303,960

Data from salary.com 

The salary of CEOs is far more than a symbolic issue, the new report notes, but it is the main driver of the wealth gap. It points to research showing that CEO pay accounted for 58 percent of the expansion of income for the top 1 percent of households and 67 percent of the income growth of the top 0.1 percent.

“CEO pay growth has had spillover effects, pulling up the pay of other executives and managers, who constitute more than 40% of all top 1.0% and 0.1% earners,” the report notes. “Consequently, the growth of CEO and executive compensation overall was a major factor driving the doubling of the income shares of the top 1% and top 0.1% of U.S. households from 1979 to 2007.”

Yet at the very top of that trend is the unparalleled rise in CEO compensation. “The fact that CEO compensation has grown far faster than the pay of the top 0.1% of wage earners indicates that CEO compensation growth does not simply reflect a competitive race for skills (the “market for talent”)… CEO compensation appears to reflect not greater productivity of executives but the power of CEOs to extract concessions,” the report notes.

The reasons for this power are are many, as I’ve previously reported, including the fact that CEOs serve on each other’s corporate boards and are generous to each other. They pay the fees of corporate compensation consultants, who typically recommend generous raises, studies show. They pay the fees of board directors, who were paid an average of $255,000 in 2014 at the top 500 companies, which had increased 50 percent since 2006, a Boston Globe analysis found and which has probably increased significantly since then. And the board members who earn these fees for a few hours work per week are, in turn, generous to the executives who pay them.

In short, its about insider power, not payment for skills. “CEO compensation could be reduced across the board and the economy would not suffer any loss of output,” the report notes.

In the wake of the coronavirus epidemic, “many companies have said their CEOs and other top executives would take pay cuts in 2020,” as the Washington Post has reported. “FedEx, for instance, said it would cut CEO and Chairman Frederick W. Smith’s base salary by 91 percent for a six-month period, while global insurer Aon cut the base salary of its top executives by 50 percent in April.”

But cuts in base pay typically have a small impact on CEO compensation. The EPI report shows that most of CEO pay comes from stock awards and typically goes up as the stock market does (even as the pay of average workers, who typically get no stock awards, stays flat). And the stock market has been booming in 2020.

“The inflation-adjusted growth of the stock market, as reflected in the S&P 500, was about 8% higher in mid-2020… than it was in 2019, indicating that CEO compensation in 2020 will very likely grow over its 2019 levels,” the report predicts.

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Categories: Business, Murphy's Law

One thought on “Murphy’s Law: CEO Pay Has Risen 1,167% Since 1978”

  1. Edward Susterich says:

    Yearly CEO compensation “earnings” of $12,000,000 translates to $6,000 per hour in “workers” terms.

    There are may who earn ~$12 per hour, but there is opposition to raising the minimum wage to $15 per hour.

    It is ironic that much of this opposition is from people not in the $6,000 per hour class

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