Fortune 500 CEO earnings have increased sixfold over the past thirty years. However, as economist Xavier Gabix has noted:
“The sixfold increase of CEO pay between 1980 and 2003 can be fully attributed to the six-fold increase in market capitalization of large US companies during that period.”
I think this is a valid consideration in the debate about compensation; however, I do think the many standard features of CEO compensation are seriously flawed. Furthermore, the reality of what happens in most corporations is lost in this discussion of Fortune 500 CEOs.
In their new book Good Intentions: Nine Hot-Button Issues Viewed Through the Eyes of Faith, Charles North and Bob Smietana have a section where they look at CEO salaries from several different angles. Here is one observation they make:
“…it’s easy to overlook the fact that most CEOs don’t run fortune 500 companies or make millions of dollars. According to the Bureau of Labor Statistics, there were about three hundred thousand CEOs in the United States in 2006. Only five hundred – or 0.17 percent – of them could be in the Fortune 500. The average annual earnings of all three hundred thousand was $144,600. This is one of the best-paying jobs in the United States, granted, about the same as the best-paying physicians. But it is a far cry from the millions of dollars paid to the CEOs of the Fortune 500 companies. And it is only 4.9 times more than the $29,544 earned by the average hourly production worker in 2006.” (128)
That would mean that $43.4 billion were paid to the three hundred thousand CEOs. From another article, I learned that the S&P 500 Corporation CEOs (which should roughly correspond to the Fortune 500) earned $15.06 million on average in 2006. That would mean $7.5 billion of the $43.4 billion went to the top 500 CEOs.
Now subtract the $7.4 billion from the $43.4 billion, and you have $35.9 billion to divide by three hundred thousand. That renders an average CEO earnings of $119,567 and a 4 to 1 ratio to hourly production worker wages.
Something to think about in the debate about CEO compensation.
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