The Economic Policy Institute unabashedly advocates for workers and unions and publishes accurate data about inequality. It recently revealed that CEO pay rose by 16% between 2019 and 2020, while the average worker saw a pay increase of only 1.8%.
In 1950, the average CEO was paid twenty times the wages of the average worker.
By 2019, the average CEO was paid 320 times as much as the average worker.
In some companies, the CEO is paid 1,000 times more than the average worker in that company.
Bloomberg.com reported on the CEO-worker pay gap, in an article titled “Is a CEO Worth 1,000 Times the Median Worker?”
Chipotle recently became the latest company to voluntarily raise worker pay, announcing that many of its 76,000 hourly employees would get a bump to $15 an hour. This occurred shortly after the company disclosed that CEO Brian Niccol had made nearly 3,000 times the median employee salary in 2020, up from 1,136 times in 2019 and among the top ten highest pay ratios among companies in the Russell 3000 stock index, according to research firm Equilar.
Coincidence? Or is the pay bump for the rank and file a sign that the most highly compensated senior executives are starting to feel a tinge of shame?
For the past four years, the Securities and Exchange Commission has required publicly traded companies to disclose something called the CEO pay ratio — the amount the CEO receives in relation to the annual salary of the median employee. At many companies, especially large companies with thousands of low paid workers (think retailers, restaurants and tourism), it’s not uncommon to see a number like Niccol’s, with the CEO making more than a thousand times the salary of the median employee. According to Equilar, there are 57 such companies in the Russell 3000. Auto-parts company Aptiv PLC topped the list: CEO Kevin P. Clark’s total 2020 compensation of $31 million was more than 5,000 times that of its median employee, who made less than $6,000, according to Aptiv’s proxy.…
The mere disclosure of the pay ratio is something of an achievement in itself, given how red-hot an issue compensation remains. The SEC took five years to write and nearly eight years to implement the rule, which was part of the Dodd-Frank legislation that then-President Barack Obama signed into law in July 2010. It has yet to complete rules on four other compensation-related topics, which were clearly not a priority under former SEC Chairman Jay Clayton. When the pay-ratio rule was first proposed in 2013, it attracted nearly 200,000 comments. It should come as no surprise that the overwhelming majority of companies were opposed, citing complicated business operations and unreasonable costs, while shareholder advocates and investors were eager to see the ratio disclosed.
Open the article to see the list of companies where the CEO: worker pay was largest.
Diane Ravitch's blog 
Income inequality and low wages were explained away in ed reform by “the skills gap theory” which they all recited as it if it were fact. The argument was working people were too unskilled to make 15 dollars and hour and therefore working people should all go for “reskilling” and then CEO’s would graciously pay them higher wages.
The entire Obama Administration promoted this theory. The blamed the lowest wage people for low wages and unemployment:
“Conventional wisdom holds that the American workforce lacks the specialized skills that employers are looking for, and that this “skills gap” is the main, if not the only, explanation for our persistently high unemployment rate—especially our long-term unemployment rate”
It must be tough for the promoters of the skills gap theory now because the labor market got tighter and wages went up, which completely eviscerates the premise of “the skills gap theory”, but no matter! We never get explanations or reversals from the people who promote this nonsense. They just blithely move on to promoting the next faddish economic theory.
https://www.epi.org/blog/unemployment-schools-wages-mythical-skills/
The “skills gap” was another way to blame the victims of income inequality. All the CEOs and many politicians were delivering the same message when talking to the press. Thanks to Bernie, Warren and some newly elected progressives, Democrats stopped endorsing that lie.
SOME Democrats stopped endorsing the lie: there is still too much blind loyalty to the deficit agenda
Differences in skills certainly explains some of the differences in earnings. At my university, outside of the athletic department, the highest paid people are physician administrators. The dean of medicine has MD and PhD degrees, earns 40% more than the chancellor and about 50 times the lowest full time employee’s salary. No doubt others in the medical school earn more than the chancellor as well.
So the economist says that since doctors make more money than economists, it’s okay to blame low wages on teachers and allow stock buybacks and exorbitant, barely taxed (if at all) financial rewards for CEOs, as if they are worth it. I say fire all the workers in the country because they are not pulling their weight. Let the CEOs do all the work by themselves. They can handle it. That’s what they’re paying themselves for, right? Because they’re so worth it? Brilliant! I look forward to seeing Jamie Dimon at the teller window the next time I need a roll of quarters to do laundry.
Teachingeconomist
Besides this example being the most out of touch example I could think of.
What you are saying is, those in the Athletic department must have more skills than the Chancellor and those Med School Administrators. In spite of their Medical degrees and PHDs .
I think I got it now.
Perhaps you can describe the skills gap between an auto worker and a store clerk . Is there one? Or is it for a host of reasons the auto worker was able to extract higher wages. As the CEO was able to extract higher wages often without delivering increased profits.
And if the company struggles to make a profit, the CEO keeps his income while the workers and consumers take a hit, even though the CEO is the one in charge of maintaining profitability. Corporate welfare queens. Change CEO to CWQ.
TEs specialty is “Economics of Sport (fishing)”
Don’t question him.
I said that the reason why some of the mid level managers at the university are paid significantly more than the CEO of the university is because of the mid level manager’s specialized skills. The reasons for the very high salaries in the athletic department for coaches (who typically out earn their boss, the athletic director) are different. They include the NCAA conspiracy to limit universities from competing for athletes so all the money gets thrown at the coaches.
Perhaps folks should read my original post again and note that I said ” Differences in skills certainly explains SOME of the differences in earnings”. I understand that folks on the internet prefer simple explanations for complex issues, but just because people prefer it does not mean that it is true. The reason that position A pays more than position B will likely not be the same reason that position C pays more than position D.
TE, I don’t understand why you are talking about the salaries of “CEO”s, or sports coaches, or med school officials of universities. While colleges/ universities no doubt have their impact on the GDP, as [corporate?] organizations, they are a small slice, and have a very different profit model than corporations, which is the subject of the thread.
In addition to the economics of sport ( fishing), changing the subject is TEs specialty.
In fact, if he didn’t do it, we would have to conclude that someone else was posting under his blog handle.
It’s not that complicated, as long as you don’t compare apples and oranges. Wages are not stagnant while CEO enrichment packages soar in size because of a skills gap. If the so-called education achievement gap disappeared overnight, Amazon would still fight unions and decent wages, Google would still use HB-1 visas and teaching coding campaigns to suppress the wages of its engineers, and movie theater chain CEOs would continue to engorge while a pandemic closed all the movie theaters.
Bethree5,
The issue under discussion here is if differing skill levels are part of the reason that wages differ within an organization. I am arguing that different skill levels do explain some of the differences in wages and pointed to an example where the people working for the boss (the chancellor) are paid more than the boss. My explanation for that is the differing skill levels.
I am sure that you will agree with me that differing skill levels are part of the explanation for different wages within an organization.
The problem is there really is not “free market” for CEOs — it is a controlled market in which boards made up of CEOs are incentivized to have huge CEO pay packages.
Jamie Dimon could be replaced tomorrow by a very talented executive willing to work for 1/4 of what he is paid. And if there aren’t any talented executives ready to take over should he not be able to fulfill his duties, that speaks to his terrible management skills in which his main motivation is to make himself irreplaceable so to extort more money from the board, which is not good for anyone but him.
Having a very high marginal tax rate would also lead to far better management by CEOs, since they would be more invested in long term gain that is real, instead of short term gain that looks good on paper and gets them a big enough salary in one year to allow them to live in luxury for the next 40 years even after they are fired for poor performance.
Or perhaps a rule that said all CEO stock options must be held and not sold until age 65.
Whenever people talk about a “gap”, there is a very good chance it’s a load of manure, no matter what they are referring to.
Highlighting a supposed gap is often just a fear mongering technique.
Back in the late 1950’s and early 1960’s the Pentagon complained of a “missile gap” between the US and Soviet Union , which was later revealed to be total fiction. One branch of the US military was even claiming the Soviets had hundreds of ICBMS at a time when they had just 4! — far fewer than the US possessed at the time. (Former defense analyst Daniel Ellsberg was privy to all the bull and has since revealed it in his writings)
Whenever people start talking about leaning gaps, there is a very good chance a big gap indeed exists. The gap is not among students, however; it’s between the ears of the people talking about learning gaps. Same thing is true with grit and resilience. Whenever people start blaming students and teachers for not having grit, there is a very good chance there is sandstone filling some of the gap between their ears.
Blaming schools for economic conditions should never have worked. It is food for only the gullible.
Chiara: That cite from a 2014 EPI report is such a joke. Absent global market imperatives and deregulation [or absence of corresponding regulation], if US corporations required higher skilled workers, they would have hired lower-skilled US workers and trained them up. That in fact is how things worked pre-1980’s—buttressed by robust unions & their apprenticeships.
There’s nothing untrue in the observation “the American workforce lacks the specialized skills that employers are looking for,” other than the conclusion that this is somebody else’s job to correct than US corporations & unions [which we were busy busting at that time].
Far cheaper to offshore basic mfg to lowpaid international workers, & import foreign engineers on H1(b) visas. Leaving the US middle/wkg classes high & dry. [What was the plan? Corporations make such a big profit they can pay for unemployed wkg class via welfare? OK to create a vast college-educated middle-class finding only wkg-class-salary jobs?]
“Is a CEO Worth 1,000 Times the Median Worker?”
I’d have to say no.
In some cases they are actually worth less.
My experience working in high tech is that CEOs can be among the least qualified people in the company.
They are often not scientists or engineers but business grads.
I once had to work for a Harvard business grad who knew absolutely nothing about the high tech products the company was producing. The person made a total fool out of themselves at engineering meetings, but was so clueless that they didn’t even realize how dumb they came across.
Worthless.
I suspect that if CEOs in some companies were replaced with Magic 8 Balls, those companies would fare no better or worse.
● It is Certain.
● It is decidedly so.
● Without a doubt.
● Yes definitely.
● You may rely on it.
● As I see it, yes.
● Most likely.
● Outlook good.
● Yes.
● Signs point to yes.
● Reply hazy, try again.
● Ask again later.
● Better not tell you now.
● Cannot predict now.
● Concentrate and ask again.
● Don’t count on it.
● My reply is no.
● My sources say no.
● Outlook not so good.
● Very doubtful.
My guess is the companies would actually fare better.
And the Magic Eight balls would be far far cheaper, even if they bought multiple ones and used a majority rule voting system to hedge against unskilled (Harvard trained ) balls.
Harvard MBAte Ball: “Don’t bother me, you silly prole. I’m counting my cash.”
lol
Excellent! Invest in Magic 8 Balls!
You can get a Magic Eight Ball for less than ten bucks.
Compare that to the millions of dollars you have to pay the average CEO EVERY year.
And the Magic Eight Ball does not require an office,stock options, a severance package , or even health insurance.
This is, ofc, the knock-down argument for management by Magic 8 Ball (MM8B).
And if you really want to get the best decision making for your company, you should probably get a Ouija Board too.
Agreed. The combination of the Ouija Board and the Magic 8 Ball more than doubles the fun.
My take on corporate decision making in the United States: