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Gap between executive pay and worker wages continues to grow

New AFL-CIO report finds executive pay continues its upward trajectory as middle class wages remain stagnant

In 2013 the average American CEO was paid 331 times what the average worker in the United States earned and 774 times what full-time minimum wage workers made, according to a new analysis released Tuesday by the AFL-CIO, the nation’s largest labor union.

Chief executives took home on average a haul of about $11.7 million in 2013, while the average employee earned $35,293.  

To calculate the CEOs’ earnings, the AFL-CIO relied on filings with the Securities and Exchange Commission as well as the website Salary.com, which provides compensation figures for chief executives for 3,000 firms. Data about workers’ wages were drawn from the Bureau of Labor Statistics.

The AFL-CIO's figures were in line with other analyses of executive pay. A survey of the CEOs of the 100 largest publicly traded companies by the firm Equilar for the New York Times found the median pay for top executives was $13.9 million in 2013 — an increase of 9 percent from the previous year.

The rising levels of executive compensation have been a well-documented phenomenon since the late 1980s, when shareholders began to offer CEOs ever more generous compensation packages, including stock options. A separate analysis done by the left-leaning Economic Policy Institute shows the explosive trajectory over time: In 1968 the top CEOs were paid only about 20 times what workers earned.

Critics, including the AFL-CIO, say that such plush salaries for the nation’s CEOs are helping widen an already yawning income and wealth gap in the United States. Moreover, many find the packages particularly galling, since many of the firms with the highest-paid CEOs operate with thousands of low-wage employees.

James Skinner, CEO of McDonald’s, for instance, made a total of $27.7 million in 2013, according to the data. Michael T. Duke of Walmart Stores Inc. hauled in $20 million in 2013, and Larry Merlo of the CVS Caremark Corp. had a salary of $31 million. Those figures are dwarfed by what Larry Ellison, the CEO of software company Oracle and the best-compensated executive in the country, made last year: $78 million.

To put those numbers in perspective, a minimum wage employee would have to work 1,372 hours to make what Duke earns in a single hour in his job at the helm of Walmart.

The steadily increasing disparity between CEO and worker salaries means it takes minimum wage workers hundreds of hours to equal the pay of just one CEO hour.
Source: AFL-CIO

“In recent decades, corporate CEOs have been taking a greater share of the economic pie while wages have stagnated and unemployment remains high,” the AFL-CIO report stated. “Even as companies argue that they can’t afford to raise wages, the nation’s largest companies are earning higher profits per employee than they did five years ago.”

Defenders of the current system argue, however, that executive higher salaries allow firms to recruit the best candidates, who are then given incentives to produce the best results for the company. In the end, the performance of top-caliber CEOs benefits both shareholders and employees.

Another body of research disputes that thinking. A review of executive pay done by J. Scott Armstrong, a professor at the Wharton School of Business, and Philippe Jacquart, an assistant professor at L’École de Management de Lyon, found no correlation between pay and performance of top CEOs.

“Higher pay fails to promote better performance,” they wrote in their paper in Interfaces, a peer-reviewed journal on organizational research. “Instead, it undermines the intrinsic motivation of executives, inhibits their learning, leads them to ignore other stakeholders and discourages them from considering the long-term effects of their decisions on stakeholders.

Also, many chief executives do not suffer the consequences when they prove themselves poor stewards. For instance, Jamie Dimon, CEO of JP Morgan Chase, earned a 74 percent pay raise in 2013, the same year that the company paid $20 billion in fines for regulatory wrongdoing and barely escaped criminal penalties.

Nell Minow, an expert on corporate governance and a longtime critic of compensation packages, said that although there was cause to be concerned about wealth further consolidating in the hands of the country’s richest executives, the bigger issue was that bloated pay packages do not produce better outcomes.

“That’s an important argument to make. Unfortunately, it feeds into the response from the other side — ‘It’s about populism and class warfare’ — which has nothing to do with it,” she said. “It has to do with the future of capitalism and whether we’re on a sustainable path.”

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