CEO-to-worker pay gap is huge
Here’s a timely riddle, given the United Auto Workers’ strike against the Big Three U.S. automakers: How long would it take for average workers to earn what their chief executives earn in one year?
Several lifetimes, data suggests. Discussing the strike Sept. 17 on CNN’s “State of the Union,” Sen. Bernie Sanders, I-Vt., told host Jake Tapper it was a “fact that CEOs are now making 400 times more than their average worker.”
Using one widely cited measure, Sanders is on the right track. One caveat: Experts say analyses of CEO pay are difficult because of the nonsalary compensation top executives typically receive, such as stock awards. And data from the AFL-CIO, a federation of independent trade unions, shows a smaller, though still significant, discrepancy.
We asked Sanders’ office for the source of his information, but received no reply.
The figure Sanders cited is nearly identical to a statistic from the Economic Policy Institute, a Washington, D.C., liberal think tank. The organization annually calculates the ratio of pay between CEOs and workers making the average median salary. The group’s analysis isn’t confined to autoworkers.
Compensation ratio 399-to-1
In the institute’s most recent report, from 2021, the compensation ratio was 399-to-1. The institute looked at the 350 largest publicly owned U.S. companies by revenue, which includes two of the Big Three automakers, General Motors Co. and Ford Motor Co. The third of the Big Three, Stellantis N.V., a Netherlands corporation formed through a 2021 merger with Fiat Chrysler, was not in this group.
To calculate this statistic, the institute uses the compensation that executives receive during a fiscal year, including salary, bonuses and incentives. For workers, the calculation uses median pay, or the figure at which half the salaries are higher and half are lower. Publicly traded companies must disclose the pay ratio between chief executive officers and median employees in annual reports filed with the Securities and Exchange Commission.
The 2021 figure marks an increase from 2020, when the ratio was 366to-1. And both 2020 and 2021 had a ratio markedly higher than ones from decades ago. By the institute’s calculations, the CEO-to-worker pay ratio was 20-to-1 in 1965 and 59-to-1 in 1989.
Another group used a different methodology and found a slightly more modest gap for 2021.
AFL-CIO’s data
The AFL-CIO used data from the S&P 500, a broad index of 500 large U.S. publicly traded companies, and found the CEO-to-average worker pay ratio was 324-to-1 in 2021 and 272-to-1 in 2022.
Based on the AFL-CIO data, Fortune magazine calculated that it would take average workers six lifetimes, assuming a 45-year career, to earn a CEO’s single-year 2022 salary.
Top bosses at publicly traded companies are the decision makers, working to improve profitability and share prices and expand companies’ market share. Boards of directors, who choose CEOs, have argued that high pay is the best way to attract qualified leaders.
But worker advocates have argued that the collective labor of rank-andfile workers, whose jobs have narrower duties, also help drive company success.
“The bottom line is, every employee contributes to the profits of the company.” Sarah Anderson, who directs the Global Economy Project at the Institute for Policy Studies, a progressive think tank, told Fast Company magazine.
Equilar, a company that collaborates annually with The Associated Press to track executive pay for 100 top-earning U.S. companies by revenue, found that Ford CEO James Farley earned a 2022 base salary of $1.7 million, a $2.8 million bonus, and stock awards worth $15.1 million, for a compensation package totaling $21 million. That was an increase of 21% from a year earlier.
The median 2022 salary for Ford workers was $74,691.
None of these calculations is foolproof. As in Farley’s case, stock grants or stock options can comprise a large portion of executive pay. Stock values fluctuate over time, while stock options typically vest after a period of years. So, the bulk of many CEO compensation packages aren’t equivalent to money in the bank.
An apples-to-apples comparison by Equilar, factoring in different methodologies used by foreign-owned Stellantis, showed that Ford’s CEO compensation increased by 21% from 2018 to 2022; GM’s rose by 34% over the same period; and Stellantis’ CEO pay decreased by 24.4%.
No matter how you calculate it, the CEO-worker pay gap is vast, said Steven Balsam, an accounting professor at Temple University’s Fox School of Business.
“We live in a society that tolerates such extremes,” Balsam said. “And I don’t see it changing.”
Our ruling
Sanders said, “CEOs are now making 400 times more than their average worker.“
That’s almost identical to a 2021 measurement released by one liberal think tank. Another estimate in 2022 using different methodology by the AFL-CIO found a lower ratio, 272-to-1, which is still much higher than ratios from the 1960s, 1970s and 1980s.
Experts caution that the difficulties of measuring CEO stock grants and options add a layer of uncertainty to all such calculations.
The statement is accurate but needs clarification or additional information. We rate it Mostly True.