Who wants to be a CEO?

Originally posted by blueballs ↑

Key findings

Growth of CEO compensation (1978–2021).Using the realized compensation measure, compensation of the top CEOs increased 1,460.2% from 1978 to 2021 (adjusting for inflation). Top CEO compensation grew roughly 37% faster than stock market growth during this period and far eclipsed the slow 18.1% growth in a typical worker’s annual compensation. CEO granted compensation rose 1,050.2% from 1978 to 2021.

Growth of CEO compensation during the pandemic (2019–2021). The dramatic increase in CEO compensation during the pandemic is remarkable. While millions lost jobs in the first year of the pandemic and suffered real wage declines due to inflation in the second year, CEOs’ realized compensation jumped 30.3% between 2019 and 2021. Typical worker compensation among those who remained employed rose 3.9% over the same time span.

Changes in the CEO-to-worker compensation ratio (1965–2021). Using the realized compensation measure, the CEO-to-worker compensation ratio reached 399-to-1 in 2021, a new high. Before the pandemic, its previous peak was the 372-to-1 ratio in 2000. Both of these numbers stand in stark contrast to the 20-to-1 ratio in 1965. Most importantly, over the last two decades the ratio has been far higher than at any point in the 1960s, 1970s, 1980s, or early 1990s. Using the CEO granted compensation measure, the CEO-to-worker compensation ratio rose to 236-to-1 in 2021, significantly lower than its peak of 393-to-1 in 2000 but still many times higher than the 44-to-1 ratio of 1989 or the 15-to-1 ratio of 1965.

Changes in the composition of CEO compensation. The composition of CEO compensation is shifting away from the use of stock options and toward the use of stock awards. Vested stock awards and exercised stock options averaged $21.9 million in 2021 and accounted for 80.1% of the average realized CEO compensation.

Changes in the CEO-to-top-0.1% compensation ratio. Over the last three decades, compensation grew far faster for CEOs than it did for other very highly paid workers (the top 0.1%, or those earning more than 99.9% of wage earners). CEO compensation in 2020 (the latest year for which data on top wage earners are available) was 6.88 times as high as wages of the top 0.1% of wage earners, a ratio 3.7 points greater than the 3.18-to-1 average CEO-to-top-0.1% ratio over the 1947–1979 period.

Implications of the growth of CEO-to-top-0.1% compensation ratio. The fact that CEO compensation has grown far faster than the pay of the top 0.1% of wage earners indicates that CEO compensation growth does not simply reflect a competitive race for skills (the “market for talent” that also increases the value of highly paid professionals more generally. Rather, the growing pay differential between CEOs and top 0.1% earners suggests the growth of substantial economic rents (income not related to a corresponding growth of productivity) in CEO compensation. CEO compensation, it appears, does not reflect the greater productivity of executives but the specific power of CEOs to extract concessions—a power that stems from dysfunctional systems of corporate governance in the United States. Because so much of CEOs’ income constitutes economic rent, there would be no adverse impact on the economy’s output or on employment if CEOs earned less or were taxed more.

Growth of top 0.1% compensation (1978–2020). Even though CEO compensation grew much faster than the earnings of the top 0.1% of wage earners, that doesn’t mean the top 0.1% did not fare well. Quite the contrary. The inflation-adjusted annual earnings of the top 0.1% grew 385% from 1978 to 2020. CEO compensation, however, grew nearly four times as fast!

CEO pay growth compared with growth in the college wage premium. Over the last three decades, CEO compensation increased more relative to the pay of other very-high-wage earners than did the wages of college graduates relative to the wages of high school graduates. This finding indicates that the escalation of CEO pay does not simply reflect a more general rise in the returns to education.

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And?

What shareholders choose to pay their CEO's is a matter for them.

It's the capital of the business owners; if they are happy to get less of a return on their capital because they are happy to pay top money for their CEOs, what business is it of the commentariat?

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