The pay gap between top corporate executives and workers is staggering – in 2019, CEO realized pay increased 14% from 2018 to an average of $21.3 million, a new study by the Economic Policy Institute (EPI) shows.
The increase was thanks to “rapid growth in vested stock awards and exercised stock options tied to stock market growth,” said study co-authors, EPI distinguished fellow Lawrence Mishel and EPI research assistant Jori Kandra.
The study uses a realized measure of pay, which counts the value of stock awards when vested or cashed in, rather than at the time granted. The authors also incorporated CEO salary amount, bonuses and long-term incentive payouts in their calculations.
According to the EPI analysis, which examined the top 350 firms in America, top executives are paid 320 times as much as a typical worker.
“While wage growth for the majority of Americans has remained relatively stagnant for decades, CEO compensation continues to balloon,” said Mishel in a release. “This has fueled the spectacular income growth of the top 0.1% and 1.0% and the growth of income inequality overall.”
From 1978 to 2019, CEO pay increased by 1,167% – which is far greater than both the growth of pay for the typical worker (13.7%) and S&P stock market growth (741%) during the 41-year period, according to the study.
The increase is due to two factors: “CEOs are getting more because of their power to set pay—and because so much of their pay (about three-fourths) is stock-related, not because they are increasing productivity or possess specific, high-demand skills,” study co-authors Mishel and Kandra wrote.
Because of this, executive pay expected to continue to increase in 2020 despite the economic impact of the Covid-19 pandemic, the co-authors say.
(According to the EPI, the inflation-adjusted growth of the S&P 500 was about 8% higher in the last half of June 2020 and first half of July 2020 than it was during that time in 2019. Since stock performance correlates with executive pay, it can be predicted that due to this increase in 2020, CEO pay will also increase.)
“CEOs offering salary cuts during the coronavirus pandemic yield press releases but no real progress toward reducing inequality and raising workers’ wages,” Mishel said in the release, since CEO salaries are often just a small piece of their compensation.
In an effort to close the growing wage gap, Mishel and Kandra named a few potential policy solutions, including higher marginal income tax rates for top executives, higher corporate tax rates for firms with larger gaps between CEO and worker compensation, capping CEO pay and having company shareholders vote on CEO pay.
“The economy would suffer no harm if CEOs were paid less (or were taxed more),” the co-authors wrote.
In 2019, Elon Musk, CEO of Tesla, was the highest paid executive with $595.3 million, according to the Bloomberg Pay Index. Following Musk was Apple CEO Tim Cook with $133.7 million, Charter Communications CEO Tom Rutledge with $117 million, former CBS CEO Joseph Ianniello with $116.6 million and Chewy CEO Sumit Singh with $108.2 million.