The CEOs of large American corporations made as much money in one day as the average worker earned over an entire year, according to an annual study timed for release around Labor Day.
This year’s “Executive Excess” report by the Institute for Policy Studies and United for a Fair Economy, found top executives at 386 Fortune 500 companies averaged $10.8 million in total compensation, more than 364 times the amount paid to the average American worker.
The study, in its 14th year, said the pay gap between business leaders and average workers continues to grow. In the 1980s, the average CEO in the United States took home just over 40 times the pay of the average worker.
The gap is even more pronounced in the most lucrative corners of America’s business sector. Last year the top 20 earners in private equity and hedge funds pocketed an average of $657.5 million. That is more than 22,000 times the pay of the average U.S. worker and 680 times the 20 highest-paid leaders of non-profit institutions.
American business leaders not only dwarf the earnings of American workers, they also outstrip their counterparts in other countries. In 2006 the 20 highest-paid European corporate managers made an average of $12.5 million, just one third of the amount taken home by the 20 highest-ranking U.S. executives. That is despite the fact that those 20 top European execs led companies that generated $19 billion more in sales revenue than corporations led by their higher-paid American counterparts.
This Labor Day, workers can celebrate the first raise in the federal minimum wage in 10 years, according to the study, but the minimum wage increase that went into effect July 24 barely dents the gap between the top and bottom rungs of America’s economy. In the decade that ended in 2006, CEO pay rose about 45 percent, adjusted for inflation, while the real value of the minimum wage, raised this year from $5.15 to $5.85 an hour, lags 7 percent behind the buying power of the minimum wage in 1996.
The report said CEOs of major American corporations saw an average of $1.3 million in pension gains last year. CEOs of S&P 500 companies retire with an average of $10.1 million in their supplemental retirement plan.
By contrast, fewer than six in 10 American households led by a 45-to-54-year-old even had a retirement account in 2004. Barely a third of American households headed by an individual 65 or older had any retirement account in 2004. Those that did averaged $173,552 in value, 1.7 percent of the dollars set aside in supplemental accounts for America’s top CEOs.
The report said the earning gap represents a market failure that needs correction.
“The outrageously massive rewards now attainable at the top of our economic ladder do our society no good,” the study said. “They ravage the enterprise teamwork that true leaders strive to nurture. They discourage individuals with leadership talent from entering less lucrative fields where their skills could make an important contribution to our common well-being.”
Proposals for changing the system include:
–Eliminating tax subsidies for excessive CEO pay. Corporations currently deduct high CEO pay packages as business expenses. One legislative proposal would cap the amount of deductible executive compensation to 25 times the pay of the company’s lowest-paid worker.
–Forcing investment-fund executives to pay their fair share of taxes. Top partners in America’s private equity and hedge fund industry currently pay taxes on their multi-million-dollar incomes at less than half the tax rate on ordinary incomes.
–Capping deferred executive pay. Average Americans can defer no more than $15,500 of their incomes through tax-sheltered 401(k)s. Top executives face no limits on the pay they can defer into special tax-free accounts.
–Eliminating tax-reporting loopholes in CEO stock options.
–Linking government procurement to executive pay.
–Increasing tax rates on high incomes. “Executive pay in the United States began to skyrocket in the early 1980s, the same years that tax rates on America’s richest taxpayers began to plummet,” the report said. “More progressive tax rates would help send a powerful cultural message that extreme income concentration undermines democracy and the common good.”
Bob Allen is managing editor of EthicsDaily.com.