Brief CEO versus Worker Income Comparison and Value
Mostly about CEO wages with a comparison to hourly wage labor. No doubt, hourly wage workers have not kept pace with CEO wages or inflation. For all intents and purposes, Direct Labor wages are a small part of the cost of manufacturing when compared to materials and overhead. Labor input is what adds value to the product.
Yet management and overall business fail to give it the value it deserves. The cost of management can not be attributed to the costs of manufacturing. It is indirect Labor. Labor is determined to be expendable during decreased economy when demand decreases.
Who pays during a recession or a pandemic? Mostly Labor while management is protected,
CEO pay has been a key driver of rising U.S. income inequality for decades, and the gap between CEO and worker pay only widened during the pandemic.
In 2021, corporate CEOs were quick to blame worker wages for causing inflation. But an AFL-CIO analysis reveals that workers’ real wages actually fell 2.4 percent in 2021 after adjusting for inflation. Meanwhile, S&P 500 companies increased their CEO pay by an average of 18.2 percent while enjoying record profits and spending a record $882 billion on stock buybacks.
Corporate boards lavish wildly complex compensation packages on their top executives, mostly in various forms of stock-based pay. The objective? To give the impression of a “pay for performance” system that aligns the interests of CEOs and shareholders. By contrast, ordinary American workers receive nearly all of their compensation in the form of cash salary or wages. In the chart above, we’ve added to the BLS median annual wage a bonus worth 2.3 percent and an employer 401(k) contribution worth 3 percent of base pay.
In reality, the notion that Corporate America has a CEO “pay for performance” system is a myth. One common ploy for inflating CEO pay? Stock buybacks. This financial maneuver siphons funds from worker wages while artificially pumping up the value of CEO stock-based pay. The Institute for Policy Studies Executive Excess 2023 report examines buyback activity among the 100 S&P 500 corporations with the lowest median wages. Between January 1, 2020, and May 31, 2023, fully 90 percent of these firms spent company resources on buybacks, for a total expenditure of $341 billion. During their stock buyback spree, the value of CEOs’ personal stock holdings at these “Low-Wage 100” firms increased more than three times as fast as their median worker pay.
During the pandemic, corporate boards took explicit actions to shield their CEOs’ massive paychecks while workers were suffering. An Institute for Policy Studies analysis found that more than half of the 100 S&P 500 companies with the lowest median worker pay moved bonus goalposts or otherwise rigged rules to inflate CEO pay in 2020. Among these rule-rigging corporations, CEO compensation averaged $15.3 million, up 29 percent from 2019. Median worker pay ran $28,187 on average, 2 percent lower than the 2019 worker pay rate. The ratio between CEO and median worker pay at these 51 firms averaged 830 to 1.
With U.S. unions playing a smaller economic role, the gap between worker and CEO pay has exploded since the early 1990s. In 1980, the average big company CEO earned just 42 times as much as the average U.S. worker. In 2021, the CEO-worker pay gap was nearly eight times larger than in 1980. According to the AFL-CIO, S&P 500 firm CEOs were paid 324 times as much as average U.S. workers in 2021. CEO pay averaged $18.3 million, compared to average worker pay of $58,260. During the 21st century, the annual gap between CEO pay and typical worker pay has averaged about 350 to 1.
The CEO pay explosion, as shown in AFL-CIO analysis, contrasts sharply with trends at the bottom end of the U.S. wage scale. Average CEO pay at S&P 500 corporations is up 642 percent since 1991. Congress has not passed a minimum wage increase for more than a decade. The federal minimum wage for restaurant servers and tipped workers has been frozen at just $2.13 per hour since 1991. According to the Labor Department, 27 states have raised their tipped minimum, while retaining this two-tier system. Seven states and the District of Columbia have eliminated or are phasing out the subminimum tipped wage altogether, while in Michigan the issue was tied up in the courts as of December 2022. In six states, the tipped minimum is still $2.13. While employers are technically supposed to make up the difference if workers don’t earn enough in tips to reach the $7.25 federal minimum, this rule is largely unenforced.
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I know there was an effort to raise the minimum wage of restaurant workers. I am not sure whether the bill ever went much further than an effort to show they tried. The most I can say for that amount is it is a supporting wage to someone else’s salary, Tips have to be descent to get by,
odd isnt how executives always seem to win? whether its when the company is doing well or if its doing really badly, the lowest paid get hammered. and this has been going on for decades. and when companies have problems, they cut the lowest paid workers jobs first, and of course if they happen to have a union (or unions) they also are cut. even those in the middle pay range get hit. course i seem to recall that at one time or another that some companies pondered also granting stock options to all employees as it would actually cut labor expenses for the company (course i do wonder if that would also impact the taxes the companies pay too). but so far no company that i know of has actually done this.
David:
I know of two companies;
1. Baxter Travenol early on in the seventies and
2. Parker Hannifin Cylinder.
I did not clarify this enough. I was speaking of stock options. I was low to middle management, so I was counted into this as a bonus. At Parker, the Jackass that hired me did not know how to implement a system for manufacturing and inventory planning. I did it for him and trained the people who reported to me. Brought inventory and manufacturing down as the economy weakened Enough so the company remained profitable.
Eventually I was laid off.
To answer the beginning of your comment . . . a lot of politicking at the upper level. But even their bosses know who is bringing on the departmental success. You can not hide incompetence.