CEO pay has increased 940% since 1978 while worker wages have gone up only 12%

January 8, 2020 12:15 am

Photo by Klaus Vedfelt/Getty Images.

Procter & Gamble paid its CEO 287 times what it paid its typical worker in 2018. Cardinal Health paid its CEO 221 times as much and Sherwin-Williams, 311. Among 53 of Ohio’s largest employers, 35 paid their top executive more than 200 times what they paid the typical worker.

Federal law requires publicly traded companies provide the ratio of CEO pay to the median employee — the person whose pay falls in the middle of all employees. Fifty-three of the top 100 Ohio employers filed reports for 2018. More than a quarter of those companies paid their CEO more than 500 times as much as they paid a typical employee; six companies paid their CEOs more than 1,000 times as much, according to a Policy Matters Ohio analysis of the reports. Forty-five of the 53 CEOs at top Ohio employers made more than $5 million, and seven made more than $20 million.

The nine Ohio companies that paid their CEOs the most in comparison to the typical worker were all retail companies. Many of these companies rely heavily on part-time employees. For example, Abercrombie & Fitch had the highest ratio. CEO Fran Horowitz made nearly $8.5 million — 3,660 times the median employee pay of just $2,317. According to Abercrombie, its typical employee was a full-time student who worked eight hours a week for seven months, which works out to just under $10 an hour.

Obviously, the ratios at Abercrombie and many retailers are especially large because the typical employee doesn’t work many hours. But even if you were to adjust the earnings at retailers and assume workers were employed full-time and year-round, CEOs at these firms are making hundreds of times as much as their workers do.

Why does it matter?

Because by paying CEOs hundreds of times what they pay the typical employee, big corporations are contributing to the growing inequality that is undermining U.S. society. Compare today with a half century ago, when CEOs made 20 times as much. Corporations paid their CEOs 940% more in 2018 than they did in 1978, adjusted for inflation, while the typical worker got an 12% wage increase, according to the Economic Policy Institute.

Stratospheric CEO pay means less is available for regular workers. Management expert Peter Drucker called for ratios of no more than 20- or 25-to-1, arguing that wider gaps hurt morale and make it difficult to foster trust.

Moreover, corporations that pay CEOs exorbitant salaries don’t perform any better. “The mechanics of chief-executive pay have grown ever more complex, but the rules remain simple: Strong performers get a raise. So do most of the rest,” said the Wall Street Journal last spring.

Federal policymakers should reverse tax laws that have reinforced these pay disparities, like the recent Trump tax cuts. They should instead adopt policies that narrow the gap, like tax rate increases on companies that pay CEOs excessively compared to what they pay employees.

Ohio also can do something about it. Lawmakers should restore higher income-tax rates on the highest earners, which they have slashed over the past 15 years. They can adopt state purchasing policies that give preference to enterprises with smaller ratios, and disqualify those with large ones from economic development subsidies.

Pension funds covering public employees also could adopt CEO pay ratio limits for what is reasonable, include those in their investment decisions, and vote against the pay plan of any company that does not meet them.

We can tackle excessive pay gaps and make them obsolete.

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Zach Schiller
Zach Schiller

Zach Schiller is Policy Matters Ohio's research director. Prior to coming to Policy Matters in 2001, Zach worked for more than two decades researching and writing about the Ohio economy as a business reporter for The Plain Dealer and Business Week. His education includes a master’s degree in journalism from Columbia University and a bachelor’s degree from the University of Michigan. For Policy Matters, Zach has written about foreclosures, economic development, job growth, unemployment insurance, tax policy and other issues. He is a member of the board of managers of the Ohio Poverty Law Center.