The AFL-CIO did its own survey of CEO compensation at 350 companies on the Standard & Poor's 500 Index. It found that in 2013 "the CEO to worker pay ratio was 331:1 and the CEO to minimum wage worker pay ratio was 774:1." On average, the CEOs of these companies received $11.7 million in total compensation:
Today’s ratio of CEO-to-worker pay is simply unconscionable. While CEO pay remains in the stratosphere, production and nonsupervisory workers took home only $35,239 on average in 2013, and a full-time worker making the federal minimum wage earned only $15,080.Congress passed a law in 1993 that was supposed to keep executive pay in check by limiting the corporate tax deduction for compensation paid to the CEO and the next four highest-paid executive officers to $1 million per person. But that exempted performance-based pay. And those who calculate executive compensation have driven a $$$-laden truck through that loophole ever since. Most executive pay isn't in cash, but in equity and options. In the technology sector, for instance, equity and options make up 90 percent of compensation, but the average across all economic sectors hovers between 60 and 70 percent. Options are being used less these days than stock awards.
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. In 2013, the S&P 500 Index companies earned $41,249 in profits per employee, a 38% increase.
Complaints about the compensation levels aren't a matter of envy. The gap between workers—especially the lowest paid workers—and the top executives is contributing to a pernicious impact on our society. Peter Eavis writes:
Economists have long known that high executive pay has contributed to the widening gap between the very rich and everyone else. But the role of executive compensation may be far larger than previously realized.That's certainly one way to look at it. But one could also say it's well under control of the people who benefit the most from the system, one in which they scoop up millions of dollars annually while millions of adults are paid a statutory minimum wage whose buying power is far less than it was two and three decades ago. It would take five years' worth of nine percent raises to bring the current national minimum wage into sync with the buying power it had in 1968. And it still would not be a living wage.
In “Capital in the 21st Century,” (Belknap Press), a new best seller that is the talk of economics circles, Thomas Piketty of the Paris School of Economics makes a staggering observation. His numbers show that two-thirds of the increase in American income inequality over the last four decades can be attributed to a steep rise in wages among the highest earners in society. This, of course, means people like the C.E.O.s in the Equilar survey, but also includes a broader class of highly paid executives. Mr. Piketty calls them “supermanagers” earning “supersalaries.”
“The system is pretty much out of control in many ways,” he said in an interview.
This system doesn't just given ample rewards to the top few and screw those on the bottom. It screws middle-class taxpayers as well. Susan Holmberg points out:
All this and Americans get the bill. Beyond the innumerable costs we’ve borne from the recent economic crisis, the Economic Policy Institute calculated that taxpayers have subsidized $30 billion to corporations for the performance pay loophole between 2007 and 2010. According to a recent Public Citizen report, the top 20 highest-paid CEOs received salaries totaling $28 million, but had deductible performance-based compensation totaling over $738 million. Assuming a 35 percent tax rate, that’s a $235 million unpaid tax bill. The Institute for Policy Studies calculated that during the past two years, the CEOs of the top six publicly held fast food chains “pocketed more than $183 million in performance pay, lowering their companies’ IRS bills by an estimated $64 million.”Some people like to tell us that this is the natural order.