Corporate Inequality

Derek Thompson charts “the five companies with the highest CEO/worker pay ratio compared with the S&P average and the 1965 average among the 350 largest companies”:


Why the ratio is growing:

First, it’s important to see how the ratio is being stretched on both ends. At the bottom, you have the slowing growth in market wages for middle- and lower-class work (like JC Penney salesperson or Starbucks barista). At the top, you have the acceleration of stock returns for public companies the 1990s and 2000s, which has fattened up executive compensation.

Second, a famous 2005 paper “The Growth of Executive Pay” suggests other reasons to explain why boards of directors are paying CEOs so much. (“Pay has grown much beyond the increase that could be explained by changes in firm size, performance, and industry classification,” they write.) Their most compelling idea is that bull markets don’t merely encourage more equity-based compensation; they also make shareholders less likely to kick and shout when executives pull down one-year pay packages many hundreds of times more than their average workers. In other words, bull markets make CEOs fabulously wealthy, and they make shareholders indifferent to their fabulous wealth.