You Won’t Believe How Crazy The CEO’s Salary Has Become Now
This is not the first time that the PPE has reported that capitalists earn more than their capital. CEO salary has been found to outpace stock market growth for several years now. But we’ve all become so accustomed to outrageous stories about CEO compensation that this discovery hasn’t garnered much attention. I didn’t notice it until last week. The concept amazed me so much that I checked EPI’s calculations. From 1978 to 2021, the realized compensation of CEOs has increased, according to EPI, by 1,460.2%, adjusted for inflation. How does this compare to stock market performance? Well, from January 1978 to January 2021 the Dow Jones Industrial Average rose, adjusted for inflation (and assuming no reinvestment of dividends) by 842.814 percent. The S&P 500 rose 904.378 percent. These growth rates are impressive, but they are much slower than 1,460%.
Thomas Piketty shocked the world by suggesting that r > g, where r is the accumulation of capital and g is economic growth. EPI’s contribution is that vs > r, where vs is the compensation of the CEO and r is capital accumulation. Capital good ; better capitalist.
Way back in 1992, Democratic presidential candidate Bill Clinton proposed limiting CEO pay by capping the amount of a CEO’s salary that a company could deduct from its taxes at $1 million. As corporate governance expert Nell Minow explained to me a decade ago, Congress legislated change in 1993, and then three things happened. The first was that every CEO in America had their salary increased to $1 million. The second was that corporate compensation committees, which remained committed to pouring money on their top executives, invented many fictitious performance indicators, such as ensuring that the company a “fun” workplace. (It was a real move for Dennis Bakke, CEO of AES Corp., a utility company whose rise was somehow tied to Enron; after Enron fell in 2001, AES stopped being fun and Bakke quit.) The third thing that happened is that companies started paying CEOs more and more through stock options. The companies claimed, absurdly, that they did not have to write these stock options on their balance sheet because these options had no known value until they were realized. (Great, Nell replied. They’re worthless? So give me some!) This new, informal method of CEO compensation has caused CEO compensation to rise even faster than before.