Dec. 6—The gap between CEOs’ pay and workers’ pay continues to rapidly widen, with the average CEO making 431 times the salary of a production worker in 2004, up from 301 to one in 2003. In the mid 1960s, the average CEO made 24 times a workers’ annual pay, according to the nonprofit Economic Policy Institute (EPI).
Several additional recent studies highlight how extensively executive pay is skyrocketing, even as workers’ wages are stagnant or dropping. In fiscal 2004, total compensation for the CEO of a median U.S. company rose across the board, with corporate officials in the energy industry getting the biggest pay hikes: 46.1 percent, according to a new report by the Conference Board, a business research group. At the same time, the average CEO took home a 91 percent raise in 2004, according to the Corporate Library, an investor research firm.
Workers Produce More, Get Paid Less Yet U.S. workers, who are more productive than ever before, are not reaping the benefits of their labor. Worker productivity increased 4.7 percent during the third quarter of 2005, according to the federal Bureau of Labor Statistics. Meanwhile, real hourly wages and benefits decreased by 1.4 percent, compared with an even higher 3.1 percent decrease in the previous quarter.
The combination of lagging workers’ compensation and higher productivity are fueling soaring profits, creating a historically unique pattern, according to EPI.
Proposed legislation in Congress would give shareholders more control over runaway executive compensation. The Protection Against Executive Compensation Abuse Act, H.R. 4291, would require public companies to include in their annual reports a comprehensive, shareholder-approved “Executive Compensation Plan.” The plan would disclose all compensation paid to top executives, such as pensions or golden parachute agreements; the performance targets used to determine the top executive’s compensation; and the company’s policy for recapturing any compensation that is found to be unjustified.
“We have witnessed a number of high profile executive pay packages that are hidden to the owners of the company, the shareholders, and I want to make sure we have full disclosure,” said Rep. Barney Frank (D-Mass.), who introduced the measure in November. “We are not taking anybody’s pay or even setting any limits, we just believe these owners should know how [management is] being paid and have some ability to do something about it if they so desire.”
Frank is the ranking Democrat on the House Financial Services Committee. The bill is co-sponsored by Reps. George Miller (D-Calif.) and Martin Sabo (D-Minn.).
“Excessive CEO pay takes money out of the pocketbooks of shareholders, including the retirement savings of America’s working families,” AFL-CIO Secretary-Treasurer Richard Trumka says. “Year after year, CEO pay levels show little apparent relationship to corporate profits, economic growth, or executive performance. Moreover, a poorly designed executive compensation package can reward decisions that are not in the long-term interests of a company, its shareholders and employees.”
