Policy- A new report finds that the CEO-to-worker pay ratio is at its highest level recorded since 1965.
- The Economic Policy Institute calculated that the top 350 CEOs make 399 times more than workers.
It pays to be a CEO — but not as much to work for them.
A new report from the left-leaning Economic Policy Institute calculates the gap between CEO pay and how much production and nonsupervisory workers make. Looking at the top 350 firms in America, and calculating pay based on how much their stock options are worth when they're actually used, they found that CEOs made $27.8 million on average in 2021.
That's 399 times greater than the average worker, the highest ratio that EPI has calculated from 1965 to 2021. It's yet another economic indicator showing that, even as wages grow, most Americans are getting left behind in real wealth gains — especially as inflation takes an increasingly bigger bite out of slightly beefed-up paychecks.
EPI looked at two kinds of compensation ratios, one using realized CEO compensation and the other using granted CEO compensation. As the authors of the report note, realized CEO compensation "counts stock awards when vested and stock options when cashed in and ownership is taken," while granted compensation "counts the value of stock awards and options when announced."
The former gives a sense of what those stock grants and options — which make up the overwhelming majority of modern CEO compensation — actually end up being worth for executives, while the latter is consistent with the federal government's disclosure requirements for C-suite pay.
EPI calculated employee pay by looking at the compensation for full-time, full-year production and nonsupervisory workers for those in the industries of these top US firms. The following chart shows how both kinds of ratios have changed since 1965:
While the 2021 ratio using realized CEO compensation is the highest figure at least since 1965, the ratio using granted compensation saw its highest value in 2000. Nevertheless, that ratio which still sits at a hefty 236.0-to-1, also shows that CEOs are making much more than production and nonsupervisory workers.
The calculations exclude Elon Musk in 2021, since he is an "extreme outlier" after exercising $23.5 billion in stock options in 2021. That's one outsized example of how CEO pay has become more and more tied up in stocks.
"While we have chosen to remove Musk from this year's CEO sample to simplify data comparability, it is worth noting that Musk's 2021 compensation is really just different in degree, not in kind, from other CEOs' pay: It is fundamentally divorced from the long-term economic value he brings to the shareholders (not to mention the workers) of his company," authors Josh Bivens and Jori Kandra write.
To be fair, Tesla stock has shot up over the last few years: According to the report, Tesla stock rose by about 300% from the onset of the pandemic to mid-2021.
The ratio between CEO compensation and how much their workers make has skyrocketed over the last several decades, with the ratio getting far higher over the past 20 years. For instance, in 1978, CEOs made around 30 times more than workers. By 2000, that grew to around 372. Overall, according to EPI, realized CEO compensation has grown by 1,460% from 1978.
In June, the left-leaning Institute for Policy Studies calculated that the disparity between CEO and worker pay is even more staggering at America's low-wage companies. CEOs at 300 low-wage companies made on average 670 times more than their workers, even when just looking at the typically lower value of stock and options grants at the time of announcement rather than when they were realized. At some firms, the divide was even starker, with the ratio of CEO pay to workers' coming in over 1,000 at 49 companies.
"Exorbitant CEO pay is a contributor to rising inequality that we could restrain without doing any damage to the wider economy. CEOs are getting ever-higher pay over time because of their power to set pay and because so much of their pay (more than 80%) is stock-related," the authors of the new EPI report wrote.
As wage growth slows and the economy cools, workers will probably not see bigger bumps to their salaries this year. Even job switching won't give workers as big of a pay bump as before. But on its current trajectory, CEO pay might still stay strong.