Coming Soon! Unequal Pay Day

There has been increased attention to “Equal Pay Day,” the date into the new year by which the average female worker has to work in order to be paid the same amount as the average male worker made in the previous year. And there has been some progress: that date for the United States used to be in April but the most recent projected Equal Pay Day is March 15, 2022. The same cannot be said for the “Unequal Pay Day,” the time of the year when the average CEO will be paid the same amount that his, or sometimes her, average employee will make during the entire year.

When Jack Welch, the man Fortune Magazine was to call the “manager of the century,” became CEO of General Electric (GE) in 1981, the compensation ratio of CEO pay to that of the average employee was 30:1. Welch had to work well into the second week of January to be paid the same amount that the average employee at GE would receive in a year. When he retired from GE in 2001, the ratio was 320:1. Welch had to work into mid-afternoon of the first work day in January to receive the compensation his average employee would make.

Welch was a pioneer — but, of course not alone — in the escalation of CEO compensation and the resulting dramatic increase in inequality. The pandemic years have not reversed that trend. In fact, the CEO-to-average worker compensation ratio has grown from “only” 372:1 prior to the pandemic to 399:1 today.   The average CEO has to labor for almost six hours, perhaps through a late lunch, to get the same compensation as the average employee will receive during the entire year. 

Of course, some CEOs do better than others. Howard Schultz, now in  his third stint as Starbucks CEO, has complained that efforts by his employees to form unions destroy his “family” vision of Starbucks. In this extended family, one member (Schultz) is compensated 1,579 times that of the average family member. Schultz must toil for a little over an hour of the first workday in January — maybe about the time when one of his baristas brings him a mid-morning chai latte — to be paid the same amount that barista will receive for working the entire year at one of his stores.  

Some economists, like those at the National Bureau of Economic Research, have tortured the data on CEO compensation to support an argument that, well, yes CEOs are highly compensated, but their increased payments are in line with what has been happening at the top 0.1% (note, not the top 1%) in general. It is all part of a competitive market for talent. But the actual data do not support that argument: CEO compensation growth has outstripped that of the 0.1% as a whole. Many CEOs have moved into the top 0.1%, out of the mere 1%.

Myriad problems result from the outrageous monetary awards granted to CEOs. One is the problem of a hereditary plutocracy, a major reason Theodore Roosevelt pushed for an estate tax more than a century ago. Another is the favored access to political elites that money buys. A mere 12 mega donors accounted for $1 of every $13 raised in in contributions to federal elections since 2009. 

I could go on, but there is one last, often overlooked problem of the gross income (and wealth) inequality that is driven by CEO compensation: the impact on climate change. Here are the numbers. The top 0.1% of the global population by income — a group in which U.S. CEOs are overrepresented — generates CO2 emissions equal to half of what is produced by the entire bottom 50% of the population: 130,000 tons/capita/year. Private jets, 20,000-square-foot houses, luxury yachts — it all adds up.

So, what is to be done?  

Some conceptually simple but politically difficult answers. First, a wealth tax such as the one proposed by Elizabeth Warren during the 2020 presidential primaries. This would counter the drift toward a hereditary plutocracy. Second, higher corporate tax rates for companies with CEO-to-employee compensation ratios above a specified level. Third, removal of the loophole that allows companies to write off their tax liabilities any compensation that is “performance based.”

And, perhaps, a maximum wage?

We know what to do. Will/can we do it is the question.

(Note: the video above is from 11 YEARS AGO, when companies were first required to reveal how much more CEOs made. And companies were already whining about even that requirement. — Ed.)