Stock market headwinds meant less generous year for some CEOs; CEO pay remains up 46.5% since 2009

Source: Lawrence Mishel and Jessica Schieder, Economic Policy Institute, July 12, 2016

From the summary:
What this report finds: In 2015, CEOs in America’s largest firms made an average of $15.5 million in compensation, which is 276 times the annual average pay of the typical worker. While the CEO-to-worker compensation ratio is down from 302-to-1 in 2014, it is still light years beyond the 20-to-1 ratio in 1965. The drop in 2015 primarily reflects a dip in the stock market and not any change in how CEO pay is being set. Therefore, CEO pay can be expected to resume its sharp upward trajectory when the stock market resumes rising.

Why it matters: Exorbitant CEO pay means that the fruits of economic growth are not going to ordinary workers since the higher pay does not reflect correspondingly higher output. From 1978 to 2015, inflation-adjusted CEO compensation increased 940.9 percent, 73 percent faster than stock market growth and substantially greater than the painfully slow 10.3 percent growth in a typical worker’s annual compensation over the same period.

How we can solve the problem: CEO pay is growing a lot faster than profits, the pay of the top 0.1 percent of wage earners, and the wages of college graduates. This means that CEOs are getting more because of their power, not because they are more productive, or have special talent, or more education. If CEOs earned less or were taxed more, there would be no adverse impact on output or employment. Policy solutions that would limit and reduce incentives for CEOs to extract economic concessions without hurting the economy include:
• Reinstate higher marginal income tax rates at the very top
• Remove the tax break for executive performance pay
• Set corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation
• Allow greater use of “say on pay,” which allows a firm’s shareholders to vote on top executives’ compensation.

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