“In 2017 the average CEO of the 350 largest firms in the US 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 report said.
“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.”
The difference between the compensations of CEOs and other very-high-wage earners is also growing, with CEOs of large companies earning 5.5 times more than the average earner in the top 0.1 percent.
The key reason for the surging gap is the stock price evaluation of firms. Many CEOs’ compensation is tied to the stock performance of a company, not by changes in salaries or cash bonuses.
At the same time, CEO compensation is rising higher than stock indices, the reports shows. CEO compensation rose up to 1,070 percent between 1978 and 2017, while the stock market index (S&P) rose only 637 percent.
The report notes that it is important to notice this gap, because “higher CEO pay does not reflect correspondingly higher output or better firm performance, exorbitant CEO pay therefore means that the fruits of economic growth are not going to ordinary workers.”
The Economic Policy Institute suggests solving the problem by reinstating higher marginal income tax rates for top management, setting corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation, setting a compensation cap and approving measures to allow company shareholders to vote on top executives’ compensation
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