CEO compensation has grown 940% since 1978, while typical worker compensation has risen only 12% during that time. This statistic highlights a growing income inequality in the United States. According to a report by the Economic Policy Institute (EPI), CEO compensation based on realized stock options of the top CEOs increased 940.3% from 1978 to 2018, while the annual compensation of a typical worker grew by only 11.9% over the same period. This trend has continued in recent years, with CEO pay skyrocketing while worker pay has remained relatively stagnant.
The trend of soaring CEO pay has continued during the coronavirus pandemic, which caused mass economic chaos and job loss among ordinary workers. EPI found that “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” . This statistic is particularly concerning given the economic hardships faced by many Americans during the pandemic.
The exponential growth in the CEO-to-worker compensation ratio reflects the strikingly different trajectory of CEO pay compared with typical worker pay. On the one hand, there has been very little growth in the compensation of a typical worker since the late 1970s: It has grown just 19.5% over the 40 years from 1979 to 2020, despite a corresponding growth of 3.5 times in worker productivity. On the other hand, CEO compensation has grown at an alarming rate, with the CEO-to-worker pay gap expanding exponentially over the past several decades. In 2020, CEOs of the top 350 firms in the U.S. made $24.2 million, on average — 351 times more than a typical worker.
The trend of growing income inequality in the United States is not only concerning from a moral standpoint, but it also has economic implications. According to a report by the International Monetary Fund (IMF), high levels of income inequality can lead to slower economic growth and increased financial instability. This is because when wealth is concentrated in the hands of a few, there is less demand for goods and services, which can lead to slower economic growth. Additionally, when the majority of the population is struggling financially, they are more likely to take on debt, which can lead to financial instability.
There are several potential reasons for the growing income inequality in the United States. One reason is the decline of unions, which has led to a decrease in worker bargaining power. According to the EPI, the decline of unions has contributed to the rise in income inequality by reducing the share of income going to workers. Another reason is the increasing prevalence of stock-based compensation for CEOs, which has led to a misalignment of incentives between CEOs and shareholders. This has led to a focus on short-term gains rather than long-term growth, which can be detrimental to the company and its workers in the long run.
The growing income inequality in the United States is a concerning trend that has economic implications. CEO compensation has grown 940% since 1978, while typical worker compensation has risen only 12% during that time. This trend has continued in recent years, with CEO pay skyrocketing while worker pay has remained relatively stagnant. The exponential growth in the CEO-to-worker compensation ratio reflects the strikingly different trajectory of CEO pay compared with typical worker pay. There are several potential reasons for the growing income inequality in the United States, including the decline of unions and the increasing prevalence of stock-based compensation for CEOs. Addressing this issue will require a multifaceted approach that includes policies aimed at increasing worker bargaining power and aligning CEO incentives with long-term growth.
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