CEO compensation surged in 2017

Source: Lawrence Mishel and Jessica Schieder, Economic Policy Institute, August 16, 2018

What this report finds: This report looks at trends in chief executive officer (CEO) compensation, using two different measures. The first measure includes stock options realized (in addition to salary, bonuses, restricted stock grants, and long-term incentive payouts). By this measure, in 2017 the average CEO of the 350 largest firms in the U.S. received $18.9 million in compensation, a 17.6 percent increase over 2016. The typical worker’s compensation remained flat, rising a mere 0.3 percent. The 2017 CEO-to-worker compensation ratio of 312-to-1 was far greater than the 20-to-1 ratio in 1965 and more than five times greater than the 58-to-1 ratio in 1989 (although it was lower than the peak ratio of 344-to-1, reached in 2000). The gap between the compensation of CEOs and other very-high-wage earners is also substantial, with the CEOs in large firms earning 5.5 times as much as the average earner in the top 0.1 percent.

The surge in CEO compensation measured with realized stock options was driven by the stock-related components of CEO compensation (stock awards and cashed-in stock options), not by changes in salaries or cash bonuses.

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), we also look at another measure of CEO compensation, to get a more complete picture of trends in CEO compensation. This measure tracks the value of stock options at the time they are granted. By this measure, CEO compensation rose to $13.3 million in 2017, up from $13.0 million in 2016.

By either measure, CEO compensation is very high relative to the compensation of a typical worker—and an earner in the top 0.1 percent.

CEO compensation has grown far faster than stock prices or corporate profits. CEO compensation rose by 979 percent (based on stock options granted) or 1,070 percent (based on stock options realized) between 1978 and 2017. The corresponding 637 percent growth in the stock market (S & P Index) was far lower. Both measures of compensation are substantially greater than the painfully slow 11.2 percent growth in the typical worker’s compensation over the same period and at least three times as fast as the 308 percent growth of wages for the very highest earners, those in the top 0.1 percent….