CEO compensation up 940% since 1978
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Topics: CEO
They also earn far more than the typical worker, and their pay has grown much more rapidly, says Economic Policy Institute.
Importantly, rising CEO pay does not reflect rising value of skills, but rather CEOs’ use of their power to set their own pay.
The average compensation for CEOs of the 350 largest U.S. firms was $17.2 million in 2018
CEO compensation using another measure, which captures the value of stock options granted (whether exercised or not), grew last year by 9.9% to $14.0 million.
Both measures show strong growth in CEO compensation over the last two years, up 7.1 and 9.2%, respectively, for compensation measured with options exercised and options granted.
Compensation grew strongly because of increasingly large stock awards given to CEOs; these stock awards averaged $7.5 million in 2018, making up nearly half of CEO compensation.
CEO compensation has grown 52.6% in the recovery since 2009 using the options-exercised measure and 29.4% using the options-granted measure.
In contrast, the typical workers in these large firms saw their annual compensation grow by just 5.3% over the recovery and actually fall by 0.2% between 2017 and 2018.
Average CEO compensation attained its peak in 2000, at the height of the late 1990s tech stock bubble, at $21.5 million (in 2018 dollars) based on either measure—368 or 386 times the pay of the typical worker, depending upon the measure used.
CEO compensation fell in the early 2000s after the stock market bubble burst, but mostly recovered by 2007, at least for the measure using exercised stock options (the measure using options granted remained substantially below the 2000 level).
CEO compensation fell again during the financial crash of 2008–2009 and rose strongly over the recovery since 2009 but still remains below the 2000 peak levels.
CEO compensation continues to be dramatically higher than it was in the decades before the turn of the millennium.
CEO compensation was 940.3% higher in 2018 than in 1978 using the options-exercised measure and 1,007.5% higher using the options-granted measure.
Correspondingly, the CEO-to-average-worker pay ratio, using the options-exercised measure, was 121-to-1 in 1995, 58-to-1 in 1989, 30-to-1 in 1978, and 20-to-1 in 1965.
"Using the stock-options-realized measure, we find that the average compensation for CEOs of the 350 largest U.S. firms was $17.2 million in 2018.
"Compensation dipped 0.5% in 2018 following a 7.6% gain in 2017. CEO compensation measured with realized stock options grew 52.6% over the recovery from 2009 to 2018.
"Using the stock-options-granted measure, the average compensation for CEOs of the 350 largest U.S. firms was $14.0 million in 2018, up 9.9% from $12.7 million in 2017 and up 29.4% since the recovery began in 2009." ■