CEOs rake in 940% more than 40 years ago, workers earn 12%

If James Carville’s famous political adage, “It’s the economy, stupid,” held true for presidential elections past, the current campaign’s focus on growing inequality in the U.S. might require an updated nugget of wisdom. Take, for instance, the chasm between what the country’s corporate leaders and their workers earn.

According to new research, CEO compensation surged 940% between 1978 to 2018. That compares with a meager 12% pay hike for the average U.S. worker over the same period, according to the Economic Policy Institute.

“CEOs are getting more because of their power to set pay, not because they are increasing productivity or possess specific, high-demand skills,” economist Lawrence Mishel and research assistant Julia Wolfe said in the report.

Depending on how it’s calculated, the average pay of CEOs at the 350 biggest U.S. companies last year came to $17.2 million (or $14 million, with the smaller number valuing the stock options that make up a big chunk of CEO pay at the time they were granted rather than when they were cashed in), the liberal-leaning think tank found.

In 1965, top corporate chiefs earned $20 for every dollar a typical worker earned, with that ratio rising to 58-to-1 by 1989, according to EPI. But a shift in the 1990s to compensate CEOs mostly with stock options, restricted shares and other incentive-based pay fueled a spike in their earnings. As a result, by last year chief execs got $278 for every $1 a typical worker earned.

Other factors that have driven income inequality in recent years: failure to raise the federal minimum wage, eroding union membership and globalization — all of which reflect shifts in economic policy in ways that favor big corporations and the rich, Mishel said.

Pay for performance?

The EPI findings are in line with an analysis by Equilar for the Associated Press earlier this year — it found that CEOs at S&P 500-listed companies made a median of $12 million last year, including salary, stock and other compensation.

Many CEOs who haul in massive stock awards aren’t necessarily demonstrating their worth, EPI’s Mishel told CBS MoneyWatch. Rather, the jump in executive comp broadly reflects the runup in stocks in recent years. “When every industry stock goes up, their stock goes up, and they’re rewarded as though they hit a triple. That’s not for performance as they are sitting in the bleachers.”

The pay gap between CEOs and rank-and-file workers had some U.S. House members calling out bank CEOs on the disparity earlier this year. New York Democrat Nydia Velazquez told the heads of the nation’s largest financial institutions appearing on Capitol Hill that the pay gap “doesn’t look good.”

Disney heiress Abigail Disney has repeatedly criticized the compensation paid to CEOs, calling it “a moral issue” and one that leaves some low-wage earnings sleeping in their cars and rationing insulin. She and other activists contend that workers are often laid off without severance, while top executives line their own and investors’ pockets through share buybacks and cash dividends.

“In the 1980s, it became all about creating money for shareholders,” William Lazonick, an economist and professor at the University of Massachusetts Lowell, said of the practice of companies spending billions of dollars to repurchase their own stock and artificially driving the price higher.

In its report, EPI called for policies including reinstating higher marginal income tax rates at the very top and setting higher corporate tax rates on companies with higher ratios of CEO-to-worker compensation.