American Workers need to look No Further Than Their Own CEOs For Why Wages Are Stagnant

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Income inequality has been increasing in the US for at least three decades. Good hard working Americans haven’t seen a real pay increase beyond the rate of inflation in years.

It is time for democrats to launch an education campaign for the voters without ever mentioning words like Republican Party, President Trump or immigration. Peoples need to know why their pay checks have been stagnant for years.

There are solutions but you can bet and probably even imagine what they are, but then you can also predict with 100% accuracy, that CEOs (and Republicans) won’t like them, like for example, reinstating the higher top income tax rate, and allowing a company’s shareholders to have more influence in setting CEO pay.

Here is the rest of the story…

On August 16, 2018, Alexia Fernandez Campbell of VOX penned the following report, “2017 was a great year for CEOs. Not so much for the average worker.” (“A new study shows that CEOs made about 312 times more money in 2017 than the average worker.”)

Excerpts:

“The American economy is booming — especially if you’re a CEO.

Earnings for the top executives at America’s largest companies skyrocketed in 2017, while wages for the average worker hardly budged.”

“CEOs for the 350 largest US companies earned an average pay of $18.9 million in 2017, a sharp 17 percent increase from the previous year, according to a new study by the left leaning Economic Policy Institute. These estimates include salaries, bonuses, restricted stock grants, cashed-in company stock, and other forms of compensation for chief executives at those firms. Meanwhile, wages for the average US worker grew a paltry 0.2 percent during that time.”

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This means that the CEOs made about 312 times more money than the average worker last year — an even larger gap than in 2016, when they made 270 times more money, according to EPI. But even more shocking is how much the gap has widened in the past 50 years: In 1965, CEOs earned only 20 times more than the average worker.

There are many theories for why CEOs are swimming in money (which I will get to in a bit). But more importantly, this study suggests that income inequality, which has exploded in recent decades, shows no signs of slowing down. And here’s the worst part: The massive income gap in 2017 doesn’t even include the windfall CEOs are reaping from the Republican tax bill, so it’s safe to say it’s a problem that is going to get worse.”

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How CEO income ballooned over the last 20 years

“Chief executives at America’s largest companies don’t get paid the way the average workerdoes. Beyond a set salary, CEOs’ compensation packages include other forms of income, such as bonuses, company stock options, and long-term incentive payouts, which can vary based on performance and the status of the stock market.”

“There are a few different ways for economists to measure how much CEO earn in a given year, which can fluctuate a lot if they decide to sell some of their shares in company stock that year. Researchers at EPI use two measures to calculate average CEO pay each year, and both estimates show that 2017 was a great year was for them.”

“The first measure includes realized stock income, or money a CEO earned from selling shares of company stock that year. That figure tends to change along with the stock market — in a year when the stock market is doing well, CEOs are more likely to sell their shares. They were pretty high in 2017, so that’s one big reason CEO pay jumped by 17 percent that year, according to the study.”

“The second measure of CEO pay is less tied to volatility in the stock market, and gives a better sense of long-term trends. It focuses on stock options granted, which represents the value of the stock when it was awarded to an executive, not the value when they decided to sell it. By this measure, CEO pay increased a more modest amount from the previous year: 1.7 percent, with an average income of $13.3 million in 2017. That’s less shocking than the first pay estimate, but it still reflects a large income gap. Even by this conservative measure, CEO pay was 221 times higher than the average worker’s.”

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“No matter how you look at the numbers, one thing is quite clear: since the 1990s, the average annual income of top executives has exploded, while the average worker’s has barely climbed.”

Here is a chart showing how CEO pay has skyrocketed since the 1990s. It peaked in 2000, took a downturn during the Great Recession, and now its on its way back up.

Economic Policy Institute

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Economists have different theories for why CEOs are making so much money. Some say it’s a reflection of their skills and market value, others believe it’s because they have too much power in setting their own pay. Both may play a role, but there is another theory, which I think is more persuasive: Starting with the Reagan tax cuts passed the 1980s, CEOs have more incentive than ever to inflate their pay.

Vox’s Ezra Klein puts it this way:

“Consider that for much of the post–World War II era, paying your CEO a lot of money didn’t make much sense because the government would simply tax it all away. Top marginal tax rates on income were above 90 percent. President Ronald Reagan’s tax cuts sent those top rates tumbling, and so a CEO who could negotiate a much bigger salary could also keep a much bigger salary.”

“Capital gains tax rates, which tax income earned from stocks, have also plummeted since then.”

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Excessive CEO pay is largely responsible for growing income inequality

“The new study on CEO pay, by economists Lawrence Mishel and Jessica Schieder, is released every year by EPI, and each year, the findings are disturbing: the income gap between the average US worker and the wealthiest earners in the United States is immense, and just keeps growing.”

“It’s true that excessive CEO pay isn’t solely responsible for the growing income gap in the United States. But economists say it was a major reason why the share of income earned by the top 1 percent doubled from 1979 to 2007. They point out that CEO pay has grown faster than corporate profits, and faster than overall gains in the stock market.”

“The authors of the study have a few suggestions about policies to reverse this trend.”

7 comments

  1. Let’s face it, Gronda, it’s all about greed. There are essentially two groups of people who control their own salaries, allowances, pension plans, bonuses, etc. CEOs, and other top management positions in the corporate world, and politicians in the supposedly public world. I hear very little about politicians’ pay scales, but if the US is anywhere close to Canada’s politicians, and they are usually worse, the % of taxes going towards politicians’ salaries and allowances and pensions grows higher every yesr, just like C**s’ salaries are growing compared to the GNP.
    Everyone is so greedy they don’t care whose backs they are climbing over. As long as they are making more money in one year than they can ever spend in a lifetime, then they are happy. To hell with anyone else.
    Have you read Karl Marx lately? Neither have I, but this is worse than he ever predicted. Way worse! Meanwhile, the rich keep telling you that socialism and communism are the scariest monsters in the world, to which they are now adding the words liberals, and democrats. When are you going to realize you are being led by the nose to your slaughter?
    You complain about the rich getting richer while everyone else gets poorer, but you do nothing about it but complain. When are your poor and middle classes going to grow backbones and do someyhing about it? Yeah, never, that’s what I thought. So stop complaining! Nothing is going to change as long as you keep electing the rich to govern you!
    But your government style is the best in the world? Of the people, by the people, for the people! Bullshit! What do those words even mean anymore? Of the people, for sure. By the people, never has been–by the rich! For the people, again never has been–for the rich only! When are you going to do something about it? Still never! You aren’t fooling anyone but yourselves…

    Liked by 2 people

  2. Dear Rawgod,

    You have a point. There is no easy one answer solution.

    But I argue for step one being education. President Trump was able to get many hard working folks to vote for him by him catering to their fears and anger. He pointed the finger for their woes at immigrants who were taking the jobs away from Americans, companies which were taking jobs, overseas.

    This is why the president is enacting policies like his anti-immigration orders and the tariffs which is his way of catering to his base comprised of folks who are buying his tripe.

    Education would point the finger at the real culprits without being anti-business but being pro business but with the requirement that the days of the worker being excluded from being recipients of their fair share of the spoils, the companies’ profits, ENDS.

    70% of the US economy is consumer driven. Once the average worker focuses on the real culprits for their stagnant wages, then they can use the power of the purse by boycotting those companies which don’t get the message. Their making record profits and CEO pay is okay as long as the average worker can make a decent living.

    No solution will be forthcoming via the Republican Party. The Democratic Party leaders need to make ending the huge income disparities in the USA, a top level priority.

    Hugs, Gronda

    Like

  3. Hi Gronda.
    If you visit any Marxist site on FaceBook (or anywhere else) you will see endless (and often very dry) commentaries hopefully predicting Capitalism will collapse and new paradise will arise. It is possible the current system will collapse and all those with nebulous wealth will end up like the Duke brothers in Trading Places. However a new form of capitalism will arise as it always does.
    The best and most constructive we can hope for is to record these feckless times and ensure from the ruins they will bring is something more responsible…. (It’s in the New Testament gospels!)

    Liked by 1 person

    • Dear Roger,

      You have the picture. Big business will not do what is right, fair, etc. on their own until the executives are faced with financial consequences.

      For that to happen, there has to better education among the masses.

      I am pro business but I am also for businesses being better citizens. This won’t happen under the administration of President Trump.

      Hugs, Gronda

      Liked by 2 people

  4. Gronda, timely post. The CEO pay ratio to that of the average worker in the US dwarfs that of similar ratios in other countries. Yet, EPS growth does not support that kind of differential.

    Pay for employees has been managed to a specific budget – 2%, 3%, etc. While annual cash incentive pay has become broader, the level is still inch greater at the upper income levels. But, a key difference is the amount of leverage in stock options and stock grants to management which is reserved primarily for the upper incomes.

    As a result, as the stock market does well over time it lifts all boats. So, often CEO and management benefit from things outside of their control. But, they also do their best to make their numbers, so stock buy backs are done to lower the denominator of EPS to make growth targets.

    Also, what happens at the end of each quarter in a publicly traded company is “dialing for dollars.” The Controller’s office will call every Responsibility Center (RC) to see if they can reverse an unused expense accrual into earnings. What does that mean? If a RC has accrued $1 million in their expense budget for mid year, but has only spent $500,000, the Controller wants to reverse the unused $500,000 into income to make their numbers.

    The key to all of this is to keep a lid on pay increases and maximize earnings to pay bonuses and increase stock price. Keith

    Liked by 2 people

    • Dear Keith,

      You explain this where it is so easy to comprehend.

      In my opinion the 2017 GOP corporation tax cuts should have somehow been tied to where the average Joe worker directly benefited in a significant way.

      Somehow, if I had this one wish, it would be to educate the American working voters better, as to why their wages have been stagnant for decades.

      Hugs, Gronda

      Liked by 1 person

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