Much has been said recently about the ‘outrageous rate of pay’ received by CEO’s in American Companies. Not just the rate of pay, but the ‘ratio of CEO pay to the average employee’ in the companies they run.
Often , and frequently in the campaigns of Hillary Clinton and Bernie Sanders, a number is tossed around which shows the drastic and, by implication, immoral disparity, stating that on average American CEO’s are paid somewhere between 295 to 333 times the pay of the average employee of their company. Additionally there is an accompanying outrage at the fact that CEO’s are receiving huge raises, while employees / workers pay is flat or reduced.
Here are some statistics provided directly by the US Bureau of Labor Statistics to shed some light on this mess
- What is the ratio of CEO pay to workers.
The common answer is in the range of 300 to 1.
This is determined by a several widely reported studies:
While the huge multi-million pay packages of a few hundred CEOs get all of the media attention, what usually receives much less attention is the small number of CEOs represented in the annual salary surveys, especially compared to the total number of CEOs in the US. For example, the WSJ’s executive compenstation survey last year included only 300 CEOs at large, U.S.-traded public companies, and the AP analyzed compensation figures for only 337 companies in the S&P 500 last year. The AFL-CIO did an analysis of the CEOs of 350 companies in the S&P 500 in 2013 and then computed a “CEO-to-worker pay ratio” of 331 times, up from a ratio of 300 ten years ago and 200 twenty years ago.
But as they say, facts are stubborn things. The key detail in the above referenced studies is the number of companies surveyed, which is fewer than 400 companies. These are also among the highest performing, largest grossing corporations in America. This cherry picking will necessarily distort the results.
When the analysis is broadened to cover a more representative sample of companies, with data supplied by the US Bureau of Labor Statistics:
The BLS report provides “employment and wage estimates by area and by industry for wage and salary workers in 22 major occupational groups, 94 minor occupational groups, 458 broad occupations, and 821 detailed occupations
The information then presents a far different picture. In fact, the average pay for 246,240 CEO’s surveyed totals to $180,700. While this is surely not minimum wage, it is not exorbitant for someone who is charged with running the entire company. When this figure is used to calculate the ratio of pay for CEO compared to average worker, the true figure drops to less than 4 to 1, or 3.83 to 1 for last year(2014).
- Why do CEO’s get huge raises while workers do not?
Once more, lets look at the BLS numbers for some factual answers:
For the larger sample of CEOs reported by the BLS, their average pay of $180,700 last year was an increase of only 1.3% from the average CEO pay of $178,400 in 2013. In contrast, the BLS reports that the average pay of all workers increased by 1.7% last year to $47,230 from $46,440 in 2013. That’s right, the average worker last year saw an increase in their pay that was more than 30% greater than the increase in pay for the average US CEO.
So, when correct information is supplied for analysis, rather than skewed and partial figures lumped into statistics for a particular agenda we see that the rallying cry of the ‘Occupy’ crowd and the socialists and the various political activists, we can see that American CEO’s are paid more than the workers in their companies, they are not ‘immoral and outrageously more’. And once again, those in rank and file of most companies have received pay increases, on average proportionally more than the CEO’s of the companies where they work.
All of this is actually beside the point. The purpose for bashing CEO pay is focused on a purpose of causing a move toward Federal Government regulation of the pay of CEOs of PRIVATE COMPANIES. There is absolutely no constitutional justification or provision for any such role for government, and no amount of skewed analysis of defective statistics should change that.
Here are some sources of reference for the above information:
Bureau of Labor statics report:
American Enterprise Institute analysis of CEO pay: