Big pay for CEOs weakens economy
The average CEO made 271 times the earnings of the typical worker last year, while more than 42 million Americans made less than $15 an hour.
Look no further for an explanation of the growing economic inequality and slow economic growth in the United States.
The average CEO compensation at the 350 largest companies in the United States, including cashed-in stock options, was $15.6 million in 2016, according to data collected by the liberal Economic Policy Institute. When the pay is calculated using the value of the stock options when they were issued, but not cashed, the average pay was $13 million.
The average compensation package was slightly down in 2016 when considered as a ratio to what the average American earns. CEOs made 271 times the average American, compared with 286-to1 in 2015 and 299-to-1 in 2014.
Remember, though, that the
era of celebrity CEOs and astronomical earnings is relatively recent. In 1989, the CEOs at America’s top companies made only $59 for every $1 a typical worker earned, and in 1965 the ratio was only 20-to-1.
To understand how this pattern can add up, the Axios news site looked at CEO pay at the top 70 U.S. health care companies over the last seven years and found they were paid more than $9.7 billion. The Affordable Care Act did not slow things down, with the CEOs getting an average 11 percent raise every year since 2010.
Average Americans, meanwhile, saw their pay go up 2.3 percent a year over the same period, according to the Bureau of Labor Statistics.
In the past, I’ve railed against the buddy system at too many boards of directors that has pumped up CEO pay. A chief executive fills board seats with other business leaders who know that when one CEO gets a big raise, consultants will recommend every corporation give every CEO a pay hike.
The problem is that astronomical pay takes money directly from the pockets of shareholders, who see lower returns because so much cash is going to labor costs. Since labor is the highest cost at most companies, CEOs routinely lay off workers and hire cheaper labor to boost company profits. Perversely, the boards then give the CEOs raises for implementing layoffs.
Meanwhile, 42 million Americans make less than $15 an hour, according to federal statistics. Most of them are more than 30 years old and have some college. The minimum wage has been $7.25 an hour for eight years, but if it were pegged to inflation and productivity gains, it would be $12 an hour.
When critics rail against the slow economic growth since the Great Recession of 2008, they too often forget that 70 percent of the U.S. economy is consumerdriven. If consumers can’t afford to buy things because wages are too low, the economy can’t grow.
That’s why groups like the Patriotic Millionaires want a higher minimum wage to stimulate the economy. Past economic data shows that higher wages for the poor stimulate the U.S. economy far better than tax cuts for the rich.
“The fact is that it’s nearly impossible for anyone to live on the minimum wage in this country,” said Keith Mestrich, president of Amalgamated Bank and a member of Patriotic Millionaires. “The economy is on the mend, and we need to make sure all boats have a chance to rise. We need to raise the minimum wage to $15 an hour, and we need to do it now.”
There is a difference between rewarding successful people and feeding greed at the expense of company shareholders. And boards need to get control over CEO compensation.
More importantly, though, we need to reduce the pay ratio by raising the pay of the average American worker. If nothing else, the 2016 election demonstrated that the American worker feels undervalued and mistreated. Raising the minimum wage would address that anger.
Failure to act at both the top and bottom of the pay scale, though, will lead to greater disparity, less economic mobility and a smaller middle class. And that would betray all of the work done in the 20th century to make the United States one of the wealthiest and most egalitarian nations on Earth.