CEO Pay and the Great Recession - Sept. 2010

Executive Excess 2010

By Sarah Anderson, Chuck Collins, Sam Pizzigati, Kevin Shih

Corporate executives, in reality, are not suffering at all. Executive pay overall remains far above inflation-adjusted levels of years past.

In fact, after adjusting for inflation, CEO pay in 2009 more than doubled the CEO pay average for the decade of the 1990s, more than quadrupled the CEO pay average for the 1980s, and ran approximately eight times the CEO average for all the decades of the mid-20th century.

American workers, by contrast, are taking home less in real weekly wages than they took home in the 1970s. Back in those years, precious few top executives made over 30 times what their workers made. In 2009, we calculate in the 17th annual Executive Excess, CEOs of major U.S. corporations averaged 263 times the average compensation of American workers.

In 2009, the CEOs who slashed their payrolls the deepest took home 42 percent more compensation than the year’s chief executive pay average for S&P 500 companies.

To bring executive pay back down to mid-20th century levels, we need reforms that cut to the quick, that recognize the dangers banks and major corporations create when they dangle oversized rewards for executive “performance.”

Solution?

There is a proposed solution, a grading system based on a set of five pay principles.

1. Encourage narrower CEO-worker pay gaps

Management guru Peter Drucker, echoing the view of [history's famous] financier J.P. Morgan, believed that the ratio of pay between worker and executive can run no higher than 20:1 [not 263:1...] without damaging company morale and productivity.

2. Eliminate taxpayer subsidies for excessive executive pay

A variety of tax and accounting loopholes that encouage excessive pay add up to a cost of more than $20 billion per year in foregone revenue. The more firms pay their CEO, the more they can deduct off their federal taxes.

3. Encourage reasonable limits on total compensation

The greater the annual reward an executive may receive, the greater the temptation to make reckless executive decisions that generate short-term earnings at the expense of long-term corporate health. Outsized CEO paychecks have also become a major drain on corporate revenues, amounting (in one recent period) to nearly 10 percent of total corporate earnings.

4. Accountability to shareholders

Instill procedures that force corporate boards to disclose and defend the rewards they extend to corporate officials. Shareholders need to know and make democratic decisions on compensation and accountability.

5. Accountability to broader stakeholders

Effective pay reforms need to encourage management decisions that take into account the interests of all corporate stakeholders, not just shareholders but consumers and employees and the communities where corporations operate.

Where has all the money gone? New additions to the Hall of Shame, charts and trends graphed.... more online >