ISSUE BRIEF
ECONOMIC POLICY INSTITUTE | ISSUE BRIEF #380

JUNE 12, 2014

CEO PAY CONTINUES TO RISE
AS TYPICAL WORKERS ARE
PAID LESSB Y L AW R E N C E M I S H E L A N D A LY S S A D AV I S

The 1980s, 1990s, and 2000s were prosperous
times for top U.S. executives, especially relative
to other wage earners and even relative to othervery high wage earners (those earning more than 99.9
percent of all wage earners). Executives constitute a larger
group of workers than is commonly recognized, and theextraordinary pay increases received by chief executive

how well this group is doing in the recovery, especiallysince this is an early indication of how well other top
earners and high-income households are faring through2013. This paper presents CEO compensation trends
through 2013 and finds:

officers of large firms had spillover effects in pulling up
the pay of other executives and managers.1 Consequently, the growth of CEO and executive compensation
overall was a major factor driving the doubling of theincome shares of the top 1.0 percent and top 0.1 percent
of U.S. households from 1979 to 2007 (Bivens andMishel 2013). Income growth since 2007 has also beenvery unbalanced as profits have reached record highs and,correspondingly, the stock market has boomed while thewages of most workers (and their families’ incomes) havedeclined over the recovery (Mishel et al. 2012; Mishel2013). It is useful to track CEO compensation to assess

Average CEO compensation was $15.2 million in2013, using a comprehensive measure of CEO pay
that covers CEOs of the top 350 U.S. firms andincludes the value of stock options exercised in agiven year, up 2.8 percent since 2012 and 21.7 percent since 2010.

Trends in CEO compensation last year:

Longer-term trends in CEO compensation:
From 1978 to 2013, CEO compensation, inflationadjusted, increased 937 percent, a rise more thandouble stock market growth and substantially greater

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than the painfully slow 10.2 percent growth in a typical worker’s compensation over the same period.
The CEO-to-worker compensation ratio was
20-to-1 in 1965 and 29.9-to-1 in 1978, grew to122.6-to-1 in 1995, peaked at 383.4-to-1 in 2000,
and was 295.9-to-1 in 2013, far higher than it was in
the 1960s, 1970s, 1980s, or 1990s.
If Facebook, which we exclude from our data due
to its outlier high compensation numbers, were
included in the sample, average CEO pay was $24.8
million in 2013, and the CEO-to-worker compensation ratio was 510.7-to-1.
CEO compensation relative to that of other high earners:
Over the last three decades, CEO compensation
grew far faster than that of other highly paid workers,
those earning more than 99.9 percent of other wage
earners. CEO compensation in 2012 was 4.75 times
greater than that of the top 0.1 percent of wage earners, a ratio 1.5 higher than the 3.25 ratio that prevailed over the 1947–1979 period (this wage gain is
equivalent to the wages of 1.5 high wage earners).
Also over the last three decades, CEO compensation
increased further relative to other very high wage
earners than the wages of college graduates grew relative to those of high school graduates.
That CEO pay grew far faster than pay of the top 0.1
percent of wage earners indicates that CEO compensation growth does not simply reflect the increased
market value of highly paid professionals in a competitive market for skills (the “market for talent”) but
reflects the presence of substantial rents embedded
in executive pay (meaning CEO pay does not reflect
greater productivity of executives). Consequently, if
CEOs earned less or were taxed more, there would be
no adverse impact on output or employment.

EPI ISSUE BRIEF #3 80 | JU NE 12, 2014

CEO compensation trends
Table 1 presents trends in CEO compensation from1965 to 2013.2 The data measure the compensation ofCEOs in large firms and incorporate stock options
according to how much the CEO realized in that particular year by exercising stock options available. The
options-realized measure reflects what CEOs report as
their Form W-2 wages for tax reporting purposes and iswhat they actually earned in a given year. This is the measure most frequently used by economists.3 In addition to
stock options, the compensation measure includes salary,bonuses, restricted stock grants, and long-term incentive
payouts. Full methodological details for the constructionof this CEO compensation measure and benchmarking
to other studies can be found in Mishel and Sabadish(2013). We make one exception to this selection criteria,
which is to exclude Facebook from the samples in 2012
and 2013 (the only years for which the firm has been
public). This is because the compensation of the CEO
is such an outlier (compensation of $2.3 billion in 2012
and $3.3 billion in 2013) that including Facebook dramatically alters our results. We report the results excluding and including Facebook in our discussion below but
exclude the firm in calculations in all the tables and figures.
CEO compensation reported in Table 1, as well as
throughout the rest of the report, is the average compensation of the CEOs in the 350 publicly owned U.S. firms(i.e., firms that sell stock on the open market) with thelargest revenue each year. Our sample each year will be
fewer than 350 firms to the extent that these large firms
did not have the same CEO for most of or all of theyear. For comparison, Table 1 also presents the annualcompensation (wages and benefits of a full-time, fullyear worker) of a private-sector production/nonsupervisory worker (a group covering more than 80 percent of
payroll employment), allowing us to compare CEO compensation with that of a “typical” worker. From 1995
onward, the table identifies the average annual compen-

PAGE 2

TA B L E 1

CEO compensation, CEO-to-worker compensation ratio, and stock prices, 1965–2013 (2013 dollars)
CEO annualcompensation(thousands)*

Worker annual compensation(thousands)
Private-sector
production/
nonsupervisory
workers

Firms’
industry**

Stock market (adjusted to 2013)

S&P 500

Dow Jones

CEO-to-worker
compensation
ratio***

1965

$819

$39.5

n/a

570

5,889

20.0

1973

$1,069

$46.4

n/a

503

4,330

22.3

1978

$1,463

$47.2

n/a

315

2,691

29.9

1989

$2,724

$44.7

n/a

586

4,553

58.7

1995

$5,768

$45.6

$51.5

822

6,829

122.6

2000

$20,172

$47.9

$53.8

1,931

14,506

383.4

2007

$18,541

$50.4

$54.0

1,660

14,805

351.3

2009

$10,394

$52.0

$57.3

1,030

9,650

193.2

2010

$12,466

$52.7

$58.0

1,218

11,398

227.9

2011

$12,667

$52.3

$57.6

1,313

12,381

231.8

2012

$14,765

$52.0

$57.1

1,400

13,155

278.2

2013

$15,175

$52.1

$55.8

1,644

15,010295.9

Percent change

Change in ratio

1965–1978

78.7%

19.5%

n/a

-44.8%-54.3%

9.9

1978–2000

1,279%

1.4%

n/a

513%

439%

353.6

2000–2013-24.8%

8.7%

3.6%-14.9%

3.5%

-87.6

1978–2013

937%

10.2%

n/a

422%

458%

237.2

* CEO annual compensation is computed using the "options realized" compensation series, which includes salary, bonus, restricted stock
grants, options exercised, and long-term incentive payouts for CEOs at the top 350 U.S. firms ranked by sales.
** Annual compensation of the workers in the key industry of the firms in the sample*** Based on averaging specific firm ratios and not the ratio of averages of CEO and worker compensation
Source: Authors’ analysis of data from Compustat’s ExecuComp database, Federal Reserve Economic Data (FRED) from the Federal
Reserve Bank of St. Louis, the Current Employment Statistics program, and the Bureau of Economic Analysis NIPA tables

sation of the production/nonsupervisory workers in the
key industries of the firms included in the sample. We
take this compensation as a proxy for the pay of typical
workers in these particular firms.
The modern history of CEO compensation (starting in
the 1960s) is as follows. Even though the stock market(as measured by the Dow Jones Industrial Average and
S&P 500 Index and shown in Table 1) fell by roughly
half between 1965 and 1978, CEO pay increased by 78.7
percent. Average worker pay saw relatively strong growth
EPI ISSUE BRIEF #3 80 | JU NE 12, 2014

over that period (relative to subsequent periods, not relative to CEO pay or pay for others at the top of the wage
distribution). Annual worker compensation grew by 19.5
percent from 1965 to 1978, only about a fourth as fast as
CEO compensation growth over that period.
CEO compensation grew strongly throughout the 1980s
but exploded in the 1990s and peaked in 2000, increasing by more than 200 percent just between 1995 and2000. Chief executive pay peaked at around $20 million
in 2000, a growth of 1,279 percent from 1978. This
PAGE 3

FIGURE A

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CEO compensation and the S&P 500 Index (in 2013 dollars), 1965–2013

1965/
01/01 20
1966/
01/01

CEO compensation (in millions of 2013 dollars)$0.8
570.0589$0.8

535.6632$0.8

560.7757

1968/
01/01 10$1.0

577.2277

1969/
01/01

$1.0

549.2137$1.0

445.2654$1.0

504.2769

1967/
01/01

1970/
01/01
1971/
01/01

15

5

0

2500

1970

2000

1500

1000

500

1980

1990

2000

2010

S&P 500 Index (adjusted to 2013)CEO compensation (in millions of 2013 dollars)

CEO
S&P 500
compensation
Index
$25
(in millions of(adjusted
S&P 500 Index(adjusted to 2013)
Year
2013 dollars)
to 2013)

0

1972/
$1.0
543.4261
01/01
Note: CEO annual compensation is computed using the "options realized" compensation series, which includes salary, bonus, restricted
1973/$1.1 exercised,503.4962
stock
grants, options
and long-term incentive payouts for CEOs at the top 350 U.S. firms ranked by sales.
01/01
Source:1974/ Authors’ analysis of data from Compustat’s ExecuComp database and Federal Reserve Economic Data (FRED) from the Federal$1.1
352.6655
01/01 Bank of St. Louis
Reserve
1975/
01/01
1976/

$1.1

339.2656$1.1

379.8092$1.5

308.0096

01/01even exceeded the growth of the booming stockincrease
1977/
market,the value$1.1
of which increased
343.7807 513 percent as mea01/01
sured by the S&P 500 or 439 percent as measured by
1978/
$1.5
314.9352
the Dow
01/01 Jones Industrial Average from 1978 to 2000.
In stark
1979/contrast to both the stock market and CEO
01/01
compensation
growth, private-sector worker compensation 1980/
increased just$1.5
1.4 percent319.5176
over the same period.
01/01

The 1981/
fall in the stockin the early 2000s led to$1.5 market314.673
01/01
a substantial paring back of CEO compensation, but
1982/
$1.5
277.4579
by 2007
01/01(when the stock market had mostly recovered)
CEO1983/
compensation returned close to its 2000 level. Fig01/01$1.5

356.7043

ure A shows how CEO pay fluctuates in tandem with thestock1984/
market as measured
by342.6552
the S&P 500 Index, con$1.5
01/01
firming that CEOs tend to cash in their options when
1985/
$1.5
385.6832
stock01/01
prices are high. The financial crisis in 2008 and1986/
the accompanying
stock market
tumble knocked CEO$1.5
479.3659
01/01

1987/ BRIEF #3 80 | JU NE 12, 2014
EPI ISSUE$1.5
562.9742
01/01
1988/
01/01

$1.5

503.0838

compensation down by 44 percent by 2009. By 2013,
the stock market had recouped all of the ground lostin the downturn and, not surprisingly, CEO compensation had also made a strong recovery. In 2013, average
CEO compensation was $15.2 million, up 2.8 percent
since 2012 and 21.7 percent since 2010. CEO compensation in 2013 remains below the peak earning years of2000 and 2007 but, as we show below, remains far above
the pay levels of the mid-1990s and much further above
CEO compensation in preceding decades.
The alignment of CEO compensation to the ups anddowns of the stock market casts doubt on an explanationof high and rising CEO pay as reflecting the escalating
individual productivity of executives, either because oflarger firms, technology, or other reasons. CEO compensation often grows strongly simply when the overall stock
PAGE 4

FIGURE B

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Real CEO compensation growth, by CEO pay fifth, 2012–2013
Quintile
12.5%

2012

%
changeBottom3247.592
11.1% 11.1%

Second10Middle7235.953

6.1%

10224.45

5.0%

Fourth
7.5
Top15660.56

0.9%37554.72

1.3%

6.1%
5.0%

5

2.5
0.9%
0

BottomSecondMiddleFourth1.3%

Top

Note: CEO annual compensation is computed using the "options realized" compensation series, which includes salary, bonus, restricted
stock grants, options exercised, and long-term incentive payouts for CEOs at the top 350 U.S. firms ranked by sales.
Source: Authors’ analysis of data from Compustat’s ExecuComp databasemarket rises and individual firm stock values rise alongwith it. This is a market phenomenon and not one of
improved firm performance: Most CEO pay packages
allow pay to rise whenever the firm’s stock value rises
and permit CEOs to cash out stock options regardlessof whether or not the rise in the firm’s stock value was
exceptional relative to other comparable firms. Over theentire period from 1978 to 2013, CEO compensation
increased about 937 percent, a rise more than double
stock market growth and substantially greater than thepainfully slow 10.2 percent growth in a typical worker’s
compensation over the same period. If we had included
Facebook in our sample then CEO compensation would
have risen 1,596 percent from 1978 to 2013.
It is interesting to note that growth in CEO pay in2013 was not driven by large increases in pay for just a

EPI ISSUE BRIEF #3 80 | JU NE 12, 2014

few executives or just those with the highest pay. Figure
B shows the growth in CEO pay when compensation
is ranked and computed by CEO compensation fifths.
CEO compensation rose across the board, and in fact
grew the most in the bottom fifth, which saw an 11.1
percent increase in CEO compensation since 2012.
The increase in CEO pay over the past few years reflects
improving market conditions driven by macroeconomic
developments and a general rise in profitability. For mostfirms, corporate profits continue to improve, and corporate stock prices move accordingly. It seems evident
that individual CEOs are not responsible for this broad
improvement in profits in the past few years, but theyclearly are benefiting from it.
This analysis makes clear that the economy is recovering
for some Americans, but not for most. The stock market
PAGE 5FIGURE C

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CEO-to-worker compensation ratio, 1965–2013
Year
500

Interpolated
values

1965/
01/01

20.0

1966/
400
01/01

20.0

1967/
01/01
300
1968/
01/01

1972/
0
01/01

351.3

20.0

295.9

23.7

1969/
200
01/01
1970/
01/01
100
1971/
01/01

383.4

227.9

23.7

188.5

23.7
23.7
20.0

58.7
29.9

87.3

23.7

1970
1980
1990
2000
2010
1973/
22.3
01/01CEO annual compensation is computed using the "options realized" compensation series, which includes salary, bonus, restricted
Note:
stock
grants, options exercised, and long-term incentive payouts for CEOs at the top 350 U.S. firms ranked by sales.
1974/
22.3
01/01
Source: Authors’ analysis of data from Compustat’s ExecuComp database, Current Employment Statistics program, and the Bureau of
1975/
22.3NIPA tables
Economic Analysis
01/01

1976/
01/01

22.4

and 1977/
corporate profits
have rebounded following the
22.4
01/01
Great Recession, but the labor market remains very slug1978/
gish.01/01
Those at the29.9
top of the income distribution, includ1979/ CEOs, are seeing a strong recovery while theing many
29.9
01/01
average worker is still experiencing the detrimental effects

the CEO’s compensation to the annual compensation ofworkers in the key industry of the firm (data on the payof workers in any particular firm are not available). The
second step is to average that ratio across all the firms.
The last column in Table 1 is the resulting ratio in select29.9 market. Compensation for privateof a 01/01
stagnant labor
sector1981/
workers has fallen 1.3 percent since 2010 and
29.9
01/01at 2009 levels.
remains

years. The trends prior to 1995 are based on the changes
in average CEO and private-sector production/nonsupervisory worker compensation. The year-by-year trend is

1980/

1982/
01/01

29.9

Trends in the CEO-to-worker
1983/
29.9
compensation
ratio
01/01
1984/

29.9
Table01/01
1 also presents
the trend in the ratio of CEOto-worker
1985/ compensation to illustrate the increased diver29.9
gence01/01
between CEO and worker pay over time. This1986/
overallratio is computedin two steps. The first step is to
29.9
01/01
construct, for each of the largest 350 firms, the ratio of
1987/
01/01

29.9

EPI ISSUE
1988/ BRIEF #3 80 | JU NE 12, 2014

01/01
1989/

29.9

presented in Figure C.
U.S. CEOs of major companies earned 20 times morethan a typical worker in 1965; this ratio grew to
29.9-to-1 in 1978 and 58.7-to-1 by 1989 and thensurged in the 1990s to hit 383.4-to-1 by the end of the
1990s recovery in 2000. The fall in the stock market
after 2000 reduced CEO stock-related pay (e.g., options)and caused CEO compensation to tumble until 2002
PAGE 6and 2003. CEO compensation recovered to a level of
351.3 times worker pay by 2007, almost back to its
2000 level. The financial crisis in 2008 and accompanying stock market decline reduced CEO compensation
after 2007–2008, as discussed above, and the CEO-toworker compensation ratio fell in tandem. By 2013, thestock market had recouped all of the value it lost following the financial crisis. Similarly, CEO compensation
has grown from its 2009 low, and the CEO-to-worker
compensation ratio in 2013 had recovered to 295.9-to-1.
Though the CEO-to-worker compensation ratio remains
below its peak values achieved earlier in the 2000s, it isfar higher than what prevailed through the 1960s, 1970s,
1980s, and 1990s. If Facebook were included in our
sample, the CEO-to-worker compensation ratio in 2013
would have been 510.7-to-1.

CEO pay relative to that of otherhighly paid workers
CEO compensation has grown a great deal, but so has
pay of other high-wage earners. To some analysts thissuggests that the dramatic rise in CEO compensation
was driven largely by the demand for the skills of CEOsand other highly paid professionals. This interpretation,
then, is that CEO compensation is being set by the market for “skills” and is taken as evidence that rising CEO
compensation is not due to managerial power and rentseeking behavior (Bebchuk and Fried 2004). One prominent example of the “it’s other professions, too” argument
comes from Kaplan (2012a, 2012b). For instance, inthe prestigious 2012 Martin Feldstein Lecture, Kaplan(2012a, 4) claimed:Over the last twenty years, then, public company
CEO pay relative to the top 0.1 percent hasremained relatively constant or declined. These
patterns are consistent with a competitive market
for talent. They are less consistent with managerial power. Other top income groups, not sub-

EPI ISSUE BRIEF #3 80 | JU NE 12, 2014

ject to managerial power forces, have seen similar
growth in pay.
And in a follow-up paper for the CATO Institute, published as a National Bureau of Economic Research(NBER) working paper, Kaplan (2012b, 21) expanded
this point further:
The point of these comparisons is to confirm
that while public company CEOs earn a greatdeal, they are not unique. Other groups with similar backgrounds—private company executives,
corporate lawyers, hedge fund investors, private
equity investors and others—have seen significant pay increases where there is a competitivemarket for talent and managerial power problems
are absent. Again, if one uses evidence of higher
CEO pay as evidence of managerial power or
capture, one must also explain why these professional groups have had a similar or even higher
growth in pay. It seems more likely that a meaningful portion of the increase in CEO pay has
been driven by market forces as well.
Bivens and Mishel (2013) address the larger issue of therole of CEO compensation in generating income gains
at the very top and conclude that there are substantial
rents embedded in executive pay, meaning that CEO pay
gains are not simply the result of a competitive market
for talent. We draw on that analysis to show that CEO
compensation grew far faster than compensation of otherhighly paid workers over the last few decades, which suggests that the market for skills was not responsible for the
rapid growth of CEO compensation. To reach this finding we employ Kaplan’s own series on CEO compensation and compare it to the incomes of top households,
as he does, but also compare it to a better standard, thewages of top wage earners.4 We update Kaplan’s series
beyond 2010 using the growth of CEO compensation in
our own series. This analysis finds, contrary to Kaplan,that compensation of CEOs has far outpaced that of very
highly paid workers, the top 0.1 percent of earners.
PAGE 7

TA B L E 2

Growth of relative CEO compensation and college wages, 1979–2012
Ratio
CEO compensation to:

Log ratio
College wages
to:CEO compensation to:College wages
to:Top 0.1%
households

Top 0.1% wage
earners

High school
hourly wages

Top 0.1%
households

Top 0.1% wage
earners

High school
hourly wages

1979

1.18

3.33

1.40

0.164

1.203

0.338

1989

1.14

2.68

1.57

0.129

0.987

0.454

1993

1.56

3.11

1.63

0.443

1.135

0.488

2000

2.90

7.93

1.75

1.064

2.071

0.557

2007

1.49

4.45

1.76

0.397

1.494

0.568

2010

2.04

4.95

1.77

0.712

1.600

0.574

2012

1.85

4.75

1.79

0.618

1.558

0.584

1979–2007

0.31

1.12

0.36

0.23

0.29

0.23

1979–2012

0.68

1.42

0.39

0.45

0.35

0.25

1989–2012

0.72

2.07

0.22

0.49

0.57

0.13

ChangeSource: Authors’ analysis of Kaplan (2012b) and Mishel et al. (2012, Table 4.8)

Table 2 presents the ratio of the average compensation ofchief executive officers of large firms, the series developedby Kaplan, to two benchmarks. The first benchmark is
the one Kaplan employs, the average household incomeof those in the top 0.1 percent developed by Piketty
and Saez (2012). The second is the average annual earnings of the top 0.1 percent of wage earners based on aseries developed by Kopczuk, Saez, and Song (2010) andupdated in Mishel et al. (2012). Each ratio is presented asa simple ratio and logged (to convert to a “premium,” therelative pay differential between one group and another).
The wage benchmark seems the most appropriate one
since it avoids issues of household demographics—changes in two-earner couples, for instance—andlimits the income to labor income (excluding capitalincome). Both the ratios and log ratios clearly understate
the relative wage of CEOs since executive pay is a nontrivial share of the denominator, a bias that has probably
grown over time simply because CEO relative pay has
grown.5 For comparison purposes Table 2 also shows thechanges in the gross (not regression-adjusted) collegeEPI ISSUE BRIEF #3 80 | JU NE 12, 2014

to-high-school wage premium. The comparisons end in2012 because 2013 data for top 0.1 percent wages are not
yet available.
CEO compensation grew from 1.14 times the income of
the top 0.1 percent of households in 1989 to 1.85 times
top 0.1 percent household income in 2012. CEO pay relative to pay of top 0.1 percent wage earners grew evenmore, from a ratio of 2.68 in 1989 to 4.75 in 2012, a
rise (2.07) equal to the pay of more than two very highearners. The log ratio of CEO relative pay grew 49 log
points from 1989 to 2012 using top 0.1 percent household incomes as the comparison, and by 57 log points
relative to top 0.1 percent wage earners.
Is this a large increase? Kaplan (2012a, 4) concluded
that CEO relative pay “has remained relatively constantor declined.” Kaplan (2012b, 14) finds that the ratio“remains above its historical average and the level inthe mid-1980s.” Figure D puts this in historical context
by presenting the ratios displayed in Table 2 back to
1947. The ratio of CEO pay to top (0.1 percent) housePAGE 8

FIGURE D

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Ratio of CEO compensation to top incomes and wages

Comparison of CEO compensation to top incomes and wages, 1947–2012

1947

0.1%
0.1%
householdwage
1947–197910
incomeearners
average:ratio 0.1% wage
ratioearners ratio
3.25
8

1948
1949
1950

6

1951
1952

4

1953
1954

2

1955
1956
1957

0

1947–1979 average: 3.25
3.62
3.25
0.1% household income ratio
1.111
3.21
3.25
1947–1979 average: 1.11
1.254
3.62
3.25

1.206

1947–1979
average:
1.11
1.11
1.11
1.11

1.048

3.08

3.25

1.11

1.137

3.08

3.25

1.11

1.193

3.01

3.25

1.11

1.340

3.35

3.25

1.11

1.205

3.49

3.25

1.11

1.172

3.51

3.25

1.11

1.205

3.47

3.25

1.11

1.314 1950 3.87

19603.25

19701.11

1980

1990

2000

2010

1.279
3.25
1958 Authors’
Source:analysis of3.86
Kaplan (2012b)
and Mishel et1.11
al. (2012, Table 4.8)
1959

1.260

4.32

3.25

1.11

1960

1.072

3.33

3.25

1.11

hold1961
incomes in2012 (1.85)
higher1.11
than
0.987
3.61 was two-thirds
3.25
the historical(1947–1979)
average of3.25
1.11. The ratio
1.083
3.62
1.11 of1962
CEO1963
pay relative
to top wage
earners3.25
in 2012 was1.11
4.75,
1.118
3.73
1.5 higher than the historical average of 3.25 (a relative
1.002
3.48
3.25
1.11
1964
gain of the wages earned by 1.5 high wage earners). As
0.907
3.39
3.25
1.11
1965
the data in Table 2 show, the increase in the logged CEO
3.25
pay 1966
premium 0.979
since 1979,3.20
and particularly
since 1.11
1989,
0.845
3.16
3.25
1.11
1967
far exceeded the rise in the college-to-high-school wage
0.750
3.25
1.11
1968 which
premium
is widely3.09
and appropriately
considered
substantial
faster
0.843 The data
3.16 would show
3.25 an even 1.11
1969 growth.
growthrelative pay
had built his
his1.063
3.06if Kaplan3.25
1.11
1970of CEO
torical series using the Frydman and Saks (2010) series
0.912
2.91
3.25
1.11
1971
for the 1980–1994 period rather than the Hall and Leib0.955
2.99
3.25
1.11
1972
man (1997) data.6
1973

1.054

2.78

3.25

1.11

Presumably,CEO
pay has grownsince
1.186 relative2.75
3.25 further1.11
1974
2012.
As Table1.193
1 showed, between
2012
CEO
2.34
3.25and 2013,1.11
1975
compensation rose 2.8 percent. (Unfortunately, data on
1.138
2.38
3.25
1.11
1976
the earnings of top wage earners for 2013 are not yet
1977

1.250

2.49

3.25

1.11

1978

1.348

2.88

3.25

1.11

3.25

1.11

3.25

1.11

EPI ISSUE#3 80 | JU NE3.33
12, 2014
1979 BRIEF1.178

1980

1.094

2.81

available for a comparison to CEO compensation
trends.) If CEO pay growing far faster than that of otherhigh earners is a test of the presence of rents, as Kaplan
has suggested, then we would conclude that today’s executives receive substantial rents, meaning that if they were
paid less there would be no loss of productivity or output.
The large discrepancy between the pay of CEOs andother very high wage earners also casts doubt on theclaim that CEOs are being paid these extraordinary
amounts because of their special skills. What skills arepresent that are so discontinuous that they jump sucha significant amount at and even beyond the point one
earns more than 99.9 percent of all earners? The distribution of skills, as reflected in the rest of the wage distribution, tends to be much more continuous.

PAGE 9

Conclusion
It is sometimes thought that the rise of CEO compensation is a symbolic issue and does not have consequences
for the vast majority. However, escalating CEO compensation and, correspondingly, executive compensation
more generally, have fueled the growth of top 1.0 percent
incomes. Bivens and Mishel (2013) note:
In a study of tax returns from 1979 to 2005,
Bakija et al. (2010) show the trend in the sharesof total income of U.S. households accruing to
the top 1.0 and top 0.1 percent of households.
They establish that the increases in income at the
top were disproportionately driven by households
headed by someone who was either an “executive” (including managers and supervisors andhereafter referred to as executives) in nonfinancial
sectors or in the financial sector as an executive
or other worker. Households headed by a nonfinance executive were associated with 44 percentof the growth of the top 0.1 percent’s income
share and 36 percent in the growth among the
top 1.0 percent. Those in the financial sector
were associated with nearly a fourth (23 percent)of the expansion of the income shares of both the
top 1.0 and top 0.1 percent. Together, financeand executives accounted for 58 percent of the
expansion of income for the top 1.0 percent ofhouseholds and an even greater two-thirds share(67 percent) of the income growth of the top
0.1 percent of households. Relative to others in
the top 1 percent, households headed by executives had roughly average income growth, thoseheaded by someone in the financial sector had
above average income growth and the remaining
households (non-executive, non-finance) had
slower than average income growth. In our view
this analysis of household income data understates the role of executives and the financial sec-

tor since they do not account for the increased
spousal income from these sources.
We have argued above that high CEO pay reflects “rents,”
meaning it does not indicate a growth of executives’
individual contribution to raising output. Consequently,
CEO pay could be reduced and the economy would
not suffer any loss of output. Another implication ofrising executive pay is that it reflects income that otherwise would have accrued to others in the economy:
What the executives earned was not available for broaderbased wage growth for other workers. Bivens and Mishel(2013) explore this issue in depth.
There are policies that can be used to curtail escalating
executive pay and broaden wage growth for the majorityof workers. Some involve taxes. Implementing higher
marginal income tax rates at the very top would limit“rent-seeking” behavior and reduce the incentives for
executives to push for such high pay. Legislation has also
been proposed that removes the tax break for executive
performance pay that was established early in the Clinton administration: By allowing the deductibility of performance pay, this tax change helped fuel the growthof stock options and other performance pay.7 Anotheroption is to set corporate tax rates higher for firms thathave higher ratios of CEO-to-worker compensation, as is
being proposed in California.8
Other policies that can potentially limit executive pay
growth are changes in corporate governance, such as
greater use of “say on pay,” which allows a firm’s shareholders to vote on top executives’ compensation.

About the authors
Lawrence Mishel, a nationally recognized economist,
has been president of the Economic Policy Institute since
2002. Prior to that he was EPI’s first research director(starting in 1987) and later became vice president. He is
the co-author of all 12 editions of The State of Working
America. He holds a Ph.D. in economics from the Uni-

EPI ISSUE BRIEF #3 80 | JU NE 12, 2014

PAGE 10versity of Wisconsin at Madison, and his articles haveappeared in a variety of academic and non-academic
journals. His areas of research are labor economics, wage
and income distribution, industrial relations, productivity growth, and the economics of education.
Alyssa Davis joined EPI in 2013 as the Bernard andAudre Rapoport Fellow. She assists EPI’s researchers intheir ongoing analysis of the labor force, labor standards,
and other aspects of the economy. Alyssa aids in thedesign and execution of research projects in areas suchas poverty, education, health care, and immigration. She
also works with the Economic Analysis and Research
Network (EARN) to provide research support to various
state advocacy organizations. Alyssa has previously
worked in the Texas House of Representatives and the
U.S. Senate. She holds a B.A. from the University ofTexas at Austin.

Endnotes
1. In 2007, according to the Capital IQ database, there were
38,824 executives in publicly held firms (tabulations kindly
provided by Temple University professor Steve Balsam).
There were 9,692 in the top 0.1 percent of wage earners.

wages, executive wages make up 13.3 percent of total top
0.1 percent wages. One can gauge the bias of including
executives in the denominator by noting that the ratio ofexecutive wages to all top 0.1 percent wages in 2007 was
2.14, but the ratio of executive wages to non-executive
wages was 2.32. Unfortunately, we do not have data that
permit an assessment of the bias in 1979 or 1989. We also
do not have information on the number and wages ofexecutives in privately held firms; their inclusion would
clearly indicate an even larger bias. The IRS reports there
were nearly 15,000 corporate tax returns in 2007 of firms
with assets exceeding $250 million, indicating there aremany more executives of large firms than just those inpublicly held firms.
6. Kaplan (2012b, 14) notes that the Frydman and Saks series
grew 289 percent, while the Hall and Leibman series grew
209 percent. He also notes that the Frydman and Saks series
grows faster than that reported by Murphy (2012).
7. U.S. Sens. Jack Reed (D-R.I.) and Richard Blumenthal(D-Conn.) introduced legislation in 2013, Stop Subsidizing
Multimillion Dollar Corporate Bonuses Act (S.1476),
which would limit the tax deductibility of performance pay.
Balsam (2013) estimates that between 2007 and 2010
alone, taxpayers subsidized more than $30 billion in
executive performance pay because of the loophole.

2. The years chosen are based on data availability, thoughwhere possible we chose cyclical peaks (years of low
unemployment).

8. See Reich (2014).

3. For instance, all of the papers prepared for the symposium

Balsam, Steven. 2013. Equity Compensation: Motivations andReferenceson the top 1.0 percent, published in the Journal of Economic

Implications. Washington, D.C.: WorldatWork Press.

Perspectives (summer 2013), used CEO pay measures withrealized options. Bivens and Mishel (2013) follow thisapproach because the editors asked them to drop references

Bivens, Josh, and Lawrence Mishel. 2013. The Pay of Corporate

to the options-granted measure.
4. We appreciate Steve Kaplan sharing his series with us.
5. Temple University professor Steve Balsam kindly provided
tabulations of annual W-2 wages of executives in the top 0.1
percent from the Capital IQ database. The 9,692 executives
in publicly owned firms who were in the top 0.1 percent ofwage earners had average W-2 earnings of $4,400,028.
Using Mishel et al. (2012) estimates of top 0.1 percent

EPI ISSUE BRIEF #3 80 | JU NE 12, 2014

Executives and Financial Professionals as Evidence of Rents in Top
1 Percent Incomes. Economic Policy Institute, Working Paper
296. http://www.epi.org/publication/pay-corporate-executivesfinancial-professionals/
Bebchuk, Lucian, and Jesse Fried. 2004. Pay Without
Performance: The Unfulfilled Promise of Executive Remuneration.
Cambridge, Mass.: Harvard University
Press. http://www.law.harvard.edu/faculty/bebchuk/pdfs/
Performance-Part2.pdf

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Evidence from Social Security Data Since 1937.” The Quarterly

program. Public data series. Various years. Employment, Hours

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designed-high-profits-stagnant-wages/

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Mishel, Lawrence, and Natalie Sabadish. 2013. Methodology for

Federal Reserve Bank of St. Louis. Federal Reserve Economic
Data (FRED) [database]. Various
years. http://research.stlouisfed.org/fred2/
Frydman, Carola, and Raven E. Saks. 2010. “Executive
Compensation: A New View from a Long-Term Perspective,
1936-–2005.” Review of Financial Studies 23, 2099–2138.
Hall, Brian J., and Jeffrey B. Liebman. 1997. Are CEOs Really
Paid Like Bureaucrats? NBER Working Paper Series, number
6213. http://www.nber.org/papers/w6213
Kaplan, Steven N. 2012a. “Executive Compensation andCorporate Governance in the U.S.: Perceptions, Facts, andChallenges.” Martin Feldstein Lecture.
Kaplan, Steven N. 2012b. Executive Compensation andCorporate Governance in the U.S.: Perceptions, Facts andChallenges. NBER Working Paper Series, number
w18395. http://www.nber.org/papers/w18395

Mishel, Lawrence. 2013. “Working as Designed: High Profits

Shierholz. 2012. The State of Working America, 12th Edition.

Measuring CEO Compensation and the Ratio of CEO-to-Worker
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of Executive Compensation. University of Southern California
Marshall School of Business Working Paper No. FBE 01.11.
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