Rewarding or Hoarding? Representative Keith Ellison on the Pay Ratio Disclosures

For the first time this year companies have had to disclose the pay ratio, comparing the salary of the CEO to the median of the workforce. [See our previous post on the charge by Ralph Nader and Steven Clifford that the gap is far wider than these disclosures indicate.]

Representative Keith Ellison (D-Minnesota) has issued a new report on what these unprecedented numbers reveal.

The CEO-worker pay ratio is a dramatic indicator of our country’s extreme economic divide. Beginning in the late 1970s, income inequality in the United States began to spiral upwards. However, this inequality was not driven by falling wages at the bottom of the income distribution. In fact, incomes for most Americans have been stagnant for four decades. Instead, this increase in income inequality was almost entirely driven by soaring compensation levels for the top 1% of income earners. Because about two-thirds of the top 1% of American households are headed by corporate executives, examining CEO pay is one key to understanding the takeoff in income inequality in the United States.

The report finds:

Pay ratios of Fortune 500 companies range from 2:1 at the low end to
nearly 5,000:1 at the high end. The average CEO to median worker pay
ratio among all 225 companies is 339:1. For historical context, in 1965, the
average CEO made 20 times the average worker.

In 188 of the 225 companies in our database a single CEO’s pay could
be used to pay more than 100 workers. A company’s ratio can also
be read as the number of “median” workers who could be hired for the
amount their CEO makes annually. At McDonalds, for example, the CEO’s
annual salary could be used to pay the yearly wages of 3,101 workers
making the median pay.

Median employees in all but six companies in our database would need
to work at least one 45-year career to earn what their CEO makes in a
single year. For example, it would take the median employee at PepsiCo
who works for a full 45-year career (age 18 to 63) more than 14 full careers
(650 years) to make what their CEO makes annually (650/45=14.4).

The industry with the highest average ratio of CEO to worker pay is
the consumer discretionary industry with a ratio of 977:1. This category
includes companies that sell clothing and food such as McDonalds, Gap,
and Kohl’s. (footnotes omitted)

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