It stalled from 2014 to 2018. 9. “The New Pay Gap: What Firms Report Paying CEOs Versus What They Take Home.” Wall Street Journal, August 25, 2019. Our examination of CEO compensation continues to provide crucial data points for evaluating current CEO compensation as well as trends in CEO compensation over time. Here we draw on and update the Bivens and Mishel (2013) analysis to show that the evidence does not support Kaplan’s claim that “professional groups have had a similar or even higher growth in pay” than CEOs (Kaplan 2012b). This follows from the fact that over 1979–2017 annual earnings rose by 22.2% for the bottom 90%, while the average growth across all earners was 40.1% (Mishel and Wolfe 2018). The topic of chief executive officer compensation can often evoke provocative headlines in various media outlets. Table 2 also presents historical and current trends in the ratio of CEO-to-worker compensation, using both measures of CEO compensation. For the period from 1978 to 2019, realized CEO compensation increased 1,166.8%—roughly 50% as fast as stock market growth (depending on the market index used) and substantially faster than the painfully slow 13.7% growth in the typical worker’s compensation over the same period. And this growing earning power at the top has been driving the growth of inequality in our country. Another implication of rising pay for CEOs and other executives is that it reflects income that otherwise would have accrued to others: What these executives earned was not available for broader-based wage growth for other workers. Both include salary, bonus, and long-term incentive payouts, but the “granted” measure includes the value of stock options and stock awards when they were granted, whereas the “realized” measure captures the value of stock-related components that accrues after options or stock awards are granted by including “stock options exercised” and “vested stock awards.” FH=First half. Predictive Analytics This will capture both the rise and fall of the value of the stock awards between grant and vesting and any increase in the stock awards due to performance equity programs that award more shares for exceeding performance targets (Francis 2019, Hodak 2019). Newsletter CEOs are even making a lot more—about six times as much—as other very high earners (wage earners in the top 0.1%). Bivens, Josh, Elise Gould, Lawrence Mishel, and Heidi Shierholz. Total Cash Compensation information is comprised of yearly Base Pay and Bonuses. The measures analyzed in the report and associated key findings include the following: This section provides detailed analysis of our findings. From 1995 onward, the table also identifies the average annual compensation of production/nonsupervisory workers in each of the industries of the firms included in the sample. 2013. Bakija, Jon, Adam Cole, and Bradley Heim. See who made the most-and the least-in WSJ's annual pay ranking. Capability Building The CEO-to-worker pay ratio peaked in 2000, at 386-to-1, even higher than the ratio with the realized compensation measure. This creates a bias in comparing data for the first half of the year relative to the full year’s data in the prior or earlier years: Compensation levels for the full year’s data are higher than compensation in the data limited to the first half. As the first part of a two-part series exploring how the investor-owned electric utilities pay their executives, EPI collected data showing the executive compensation for 41 utility CEOs, presented in the table below. The stock market decline during the 2008 financial crisis also sent CEO compensation tumbling, as it had in the early 2000s. If we were able to remove top CEOs’ pay from the top 0.1% category, it would reduce the average for the broader group.12. Note: The revised measure of realized CEO compensation includes the value of realized stock options and vested stock awards. Rent-seeking behavior is the practice of manipulating systems to obtain more than one’s fair share of wealth—that is, finding ways to increase one’s own gains without actually increasing the productive value one contributes to an organization or to the economy. * Average annual compensation of the workers in the key industry of the firms in the sample. 17. To provide data for CEO compensation in 2019 that are consistent with the historical data, we construct our estimates by looking at the growth of compensation from 2018 to 2019 using the first-half-year samples of data available each year and then applying that growth rate to the compensation for 2018 based on the full-year sample. Mishel, Lawrence. Staff of Congressman Keith Ellison. A company’s reported “median worker” may, for example, work part time or full time, reside in the U.S. or abroad, and have worked for the firm for a limited number of weeks during the previous year. For comparison purposes, Table 3 also shows the changes in the gross (not regression-adjusted) college-to-high-school wage premium. As profits and stock market prices have reached record highs, the wages of most workers have grown very modestly, including in the recovery from the Great Recession (Bivens et al. FBE 01.11. ExecuComp [commercial database]. By 2018, however, the revised CEO compensation measure is $18,663,000, $1,214,000, or 7.0%, greater than the unrevised measure, $17,448,000. The median target total compensation for these CEOs increased 9% from $7.11 million in 2018 to $7.72 million in 2019. If CEO pay growing far faster than that of other high earners is evidence of the presence of rents, as Kaplan suggests, one would conclude that today’s top executives are collecting substantial rents, meaning that if they were paid less there would be no loss of productivity or output in the economy. 1: 91–128. But for stock awards, the value is determined at the time stocks are granted; any future gains in the value of the stock that accrue to the CEO are not captured by data disclosed by the firms. Advocates, investors, and researchers alike have welcomed the disclosure of this information, because these disclosures offer previously unavailable insight into compensation inequality within firms. Steven Clifford, author of The CEO Pay Machine: How It Trashes America and How to Stop It (2017), has also provided technical advice. Privacy Policy • Contact Us. These estimates are determined using the Black Scholes model. “Methodology for Measuring CEO Compensation and the Ratio of CEO-to-Worker Compensation, 2012 Data Update.” Economic Policy Institute Working Paper no. 2018. Other top income groups, not subject to managerial power forces, have seen similar growth in pay. However, granted CEO compensation remained down, at $14.4 million in 2007, a substantial $7.6 million fall from the 2000 level. We thank Steve Kaplan for sharing his CEO compensation series with us (Kaplan 2012b). Anthem, Inc. income statements for executive base pay and bonus are filed yearly with the SEC in the edgar filing system. These two stock-related items—stock options and stock awards—together still make up the bulk of CEO compensation, at 74% and 68%, respectively, of options-exercised and options-granted CEO compensation measures in 2018…. Mishel, Lawrence, and Julia Wolfe. National Income and Product Accounts (NIPA) Tables [online data tables]. Many view the high level of CEO compensation as the result of powerful managers setting their own pay. This discontinuity, and associated possible measurement error, does not matter a great deal for our analysis since our focus is on longer-term trends, analyzing CEO compensation trends since 2007, the year before the financial crisis that sparked the Great Recession, or since 2009, the beginning of the recovery from the Great Recession. (Bivens and Mishel 2013 explore this issue in depth.) It seems that CEOs and other executives may have been prime beneficiaries of these firms’ greater market power. Previous reports used the value of stock awards as granted in both the realized and granted compensation measures, so that the measures differed in only their treatment of stock options. Well, first we learned that CEOs get paid a lot. Compared with the old measure, the revised measure shows a smaller decline of CEO compensation from 2007 to 2018, 3.9% versus 14.2%, and a much larger growth of CEO compensation over the 2009–2018 recovery period (79.9% versus 54.2%). That made Kennedy, its 47-year-old CEO, the second-highest-paid executive in 2018 among companies traded on U.S. exchanges, according to the Bloomberg Pay Index. 2010. This allows us to assess how the change in the stock award measure affects CEO compensation trends since 2006, which is the first year for which the vested value of stock awards is available. Realized CEO compensation was 1,167% higher in 2019 than in 1978 and granted CEO compensation was 1,033% higher. The BDO 600 study was conducted in Fall 2019, prior to the global COVID-19 pandemic. The new CEO-to-worker compensation ratios contained in proxies in 2018 and in 2019 shine a ray of sunlight onto the compensation of the typical worker. The consistent basis of the measurement of our ratios permits historical comparisons on a year-to-year basis. Economic Policy Institute, February 2020. “Executive Compensation: A New View from a Long-Term Perspective, 1936–2005.” Review of Financial Studies 23, no. Clifford (2017) recommends setting a cap on compensation and taxing companies on any amount over the cap, similar to the way baseball team payrolls are taxed when salaries exceed a cap. Temple University professor Steve Balsam provided tabulations from the Capital IQ database of annual wages of executives exceeding the wage thresholds (provided to him) that place them in the top 0.1% of wage earners. As CEO of Google's parent company Alphabet, Sundar Pichai's compensation in fiscal 2019 totaled $280.6 million – by far the most of any CEO of one of the largest public American companies. This latter increase exceeded even the growth of the booming stock market (513% for the S&P 500 and 439% for the Dow) between 1978 and 2000. We do not have data that would permit an assessment of the bias in 1979 or 1989. Here's how it impacts your workplace—and our democracy. By 2007, however, when the stock market had mostly recovered, realized CEO compensation reached $19.4 million, just $2.5 million below its 2000 level. Fourth, our series is able to extend back to 1965, allowing us to analyze trends in executive compensation over time. Corporate Governance Notes: Realized average annual CEO compensation is computed using salary, bonus, vested stock awards, options realized, and long-term incentive payouts for CEOs at the top 350 U.S. firms ranked by sales. CEO realized compensation grew to $21,283,000 in 2019, $2,621,000 or 14.0% higher than in 2018. 1. In contrast, compensation of the typical worker grew by just 13.7% from 1978 to 2019. 2018. The four areas of CEO pay we’ll cover include: Companies with revenue above $10 billion have the biggest increase in target total compensation of 10% while smaller companies report an 8% increase. The strong growth in CEO compensation in 2019 raised it to $1.9 million above where is was in 2007, before the 2008 financial crisis. 2019. Rewarding or Hoarding? There are a limited number of firms, which existed only for certain years between 1992 and 1996, for which a North American Industry Classification System (NAICS) value is unassigned. Kopczuk, Wojciech, Emmanuel Saez, and Jae Song. Annual worker compensation grew by 19.9% from 1965 to 1978, only about a fourth as fast as CEO compensation growth. We chose which years to present in the table in part based on data availability. There’s an inherent imbalance of bargaining power between employers and employees. Board of Directors Clifford served as CEO for King Broadcasting Company from 1987 to 1992 and National Mobile Television from 1992 to 2000 and has been a director of thirteen public and private companies. Granted CEO compensation grew $1.1 million or by 8.6% to $14.5 million in 2019. “Top 1.0% of Earners See Wages Up 157.8% Since 1979.” Working Economics Blog (Economic Policy Institute), December 18, 2019. 378, June 2014. Press. From 1978 to 2019, CEO pay based on realized compensation grew by 1,167%, far outstripping S&P stock market growth (741%) and top 0.1% earnings growth (which was 337% between 1978 and 2018, the latest data year available). To learn more about year-over-year pay trends and how to participate in the TCM Survey, please contact us now. These disclosures must be made in annual proxy statements submitted to the Securities and Exchange Commission. They are less consistent with managerial power. 18. Note however that trends before 1995 are based on the changes in average top-company CEO and economywide private-sector production/nonsupervisory worker compensation. To reach this finding, we use Kaplan’s series on CEO compensation and compare it with the wages of top wage earners (reflecting W-2 annual earnings, which includes the value of exercised stock options and vested stock awards), rather than the household income of the top 0.1% as Kaplan did.11 The wage benchmark seems the most appropriate one because it avoids issues of changing household demographics (e.g., increases in the number of two-earner households over time) and limits the income to labor income (i.e., it excludes capital income, which is included in household income measures). Source: Authors’ analysis of data from Compustat’s ExecuComp database, the Federal Reserve Economic Data (FRED) database from the Federal Reserve Bank of St. Louis, the Bureau of Labor Statistics’ Current Employment Statistics data series, and the Bureau of Economic Analysis NIPA tables. The analysis undertaken examined publicly available CEO pay data for 446 companies in Japan, France, Germany, the U.K. and the U.S., which each had more than one trillion Japanese yen in sales revenue in fiscal year 2018. 406, September 2015. Our methodology (described in Sabadish and Mishel 2013) has a number of advantages over the SEC-prescribed methodology for constructing ratios. With stock options, CEOs can only make gains: They realize a gain if the stock price rises beyond the price of the initial options granted and they lose nothing if the stock price falls. Interactive tools and videos bringing clarity to the national dialogue on economic inequality. Realized CEO compensation grew to $21.3 million in 2019, which was $2.6 million or 14.0% higher than in 2018. Compensation in the sample exploded in the firm ’ s methodology and Jessica Schieder Blog. Measurement is the same as in prior reports companies that had the same as in prior reports the Black model. 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