One narrative we’ve sought to drive home particularly hard since March (when we first solved [4] the mystery of America’s missing wage growth), is the disparity between [5] wage growth for the 83% of American workers classified by the BLS as “non-supervisory” and wage growth for the other 17% who are classified as “supervisory”.
In short, the “supervisors” are America’s bosses and for them, wage growth hasn’t looked so bad of late. However, the “non-supervisors” haven’t been so lucky, which is one more reason why no one should expect a robust, consumption-led recovery and also helps to explain why the post-crisis world suffers from a global demand dearth.
In this environment it’s always amusing to take a look at just how wide the disparity is between average workers and the “supervisors” par excellence — i.e. America’s CEOs. As you can see from the chart shown below, the CEO-to-worker comp ratio is now back near its all-time high helped, no doubt, by a soaring stock market which the CEOs themselves have helped to inflate via buybacks:
More from The Economic Policy Institute [6]:
CEO compensation grew strongly throughout the 1980s but exploded in the 1990s and peaked in 2000 at around $20 million, an increase of more than 200 percent just from 1995 and 1,271 percent from 1978. This latter increase even exceeded the growth of the booming stock market—513 percent for the S&P 500 and 439 percent for the Dow. In stark contrast to both the stock market and CEO compensation, private-sector worker compensation increased just 1.4 percent over the same period.
The fall in the stock market in the early 2000s led to a substantial paring back of CEO compensation, but by 2007 (when the stock market had mostly recovered) CEO compensation returned close to its 2000 level. CEO pay fluctuates in tandem with the stock market as measured by the S&P 500 index, confirming that CEOs tend to cash in their options when stock prices are high. The financial crisis in 2008 and the accompanying stock market tumble knocked CEO compensation down 44 percent by 2009. By 2014, the stock market had recouped all of the ground lost in the downturn and, not surprisingly, CEO compensation had also made a strong recovery. In 2014, average CEO compensation was $16.3 million, up 3.9 percent since 2013 and 54.3 percent since 2009. CEO compensation in 2014 remained below the peak earning years of 2000 and 2007 but 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 and downs of the stock market casts doubt on any explanation of high and rising CEO pay that relies on the rising individual productivity of executives, either because they head larger firms, have adopted new technology, or other reasons. CEO compensation often grows strongly simply when the overall stock market rises and individual firms’ stock values rise along with it (Figure A). This is a marketwide phenomenon and not one of improved performance of individual firms: most CEO pay packages allow pay to rise whenever the firm’s stock value rises and permit CEOs to cash out stock options regardless of whether or not the rise in the firm’s stock value was exceptional relative to comparable firms. Over the entire period from 1978 to 2014, CEO compensation increased about 997 percent, a rise almost double stock market growth and substantially greater than the painfully slow 10.9 percent growth in a typical worker’s compensation over the same period.
