Next year, the Dodd-Frank Act will require publicly traded companies to publish their CEO-to-worker pay ratio, a move that’s expected to draw attention to the growing gulf between the salary of CEOs at top companies and the salary of employees who work for the same. Since the 1970s, CEO pay has increased 997 percent, adjusted for inflation, according to a report from the EPI. The question is whether that growth is justified—and do workers care about their chief executive’s compensation?
Interestingly, many don’t even know how much the CEO earns. PayScale and Equilar’s new report, CEO Pay: How Much Do CEOs Make Compared to Their Employees?, examined more than 22,000 recent responses to PayScale’s Salary Survey to see how respondents felt about their CEO’s salary. Over half said they had no idea how much the top boss was paid.
Of those who knew the CEO’s salary, 79 percent said they felt it was appropriate. Fifty-seven percent of respondents who felt negatively about the CEO’s compensation said that it affected their opinion of their employer; however, only 26 percent of those respondents said that they plan to leave the company.
Younger workers were least likely to know what the CEO was paid, but most likely to have a negative opinion of their company, based on CEO pay; 58 percent of Millennials said that they didn’t know how much the CEO was paid, compared to 54 percent of Gen Xers and 51 percent of Baby Boomers, and 63 percent of Millennials said that their view of their employer was negatively affected by their CEO’s compensation. Only 29 percent, however, said that they were considering leaving because of it.
Workers were also more likely to know what the CEO made the higher their own position on the corporate ladder. Fifty-nine percent of individual contributors said they didn’t know the CEO’s salary, compared with 33 percent of executives. Interestingly, executives were slightly more likely to say that the CEO made too much money (12 percent, compared with 9 percent at each other job level) but also more likely to say that the CEO was paid appropriately (55 percent of executives said so).
Finally, respondents who made more money were more likely to know how much their CEO was taking home, and more likely to approve of it. More than 80 percent of respondents in income brackets making $50,000 a year or more said they were fine with their CEO’s pay.
Should Workers Care About CEO Pay?
There are plenty of arguments on both sides. Michele A. Carlin and Heather Slavkin Corzo at MarketWatch sum up the opposing views on the pay-ratio rule neatly:
“Proponents of the rule argue that these are positive developments. CEO pay is out of line with companies’ performance, they say, and top bosses should be held accountable. Critics say that the evidence doesn’t show pay gaps are important to workers or investors, and that focusing on them is a political move that distracts from more important issues.”
The same could be said for CEO pay generally—for every critic who points out that CEO pay has grown at almost double the market over the past 35-plus years, there’s another who notes that the vast majority of CEOs run smaller firms. The pay of the average American CEO is about four times that of the average American worker—not exactly the ratio you find at Fortune-500 companies. On the other hand, relatively few workers are employed by those small firms. The typical American worker, according to the EPI, works at a company with 1,000 workers.
Whichever view you take, it seems likely that the same forces that allowed top-CEO pay to grow are the ones that have allowed typical-worker pay to stagnate since the Recession. PayScale’s Real Wage Index shows that the buying power of a typical American worker’s salary has declined 7.4 percent since 2006, while the EPI notes that CEO pay has climbed steadily since 2009.
Tell Us What You Think
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