U.S. CEOs earned 303 times the pay of average worker

Chief executives at the largest listed companies in the U.S. earn 303 times more than the average industrial worker, according to new research from the Economic Policy Institute in Washington, D.C.

CEOs earned three times more than they did 20 years ago and at least 10 times more than 30 years ago, a pace of increase that is high even compared to other high-wage earners.

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Average CEO compensation for the largest 350 firms was $16.3 million US in 2014, including pay, stock options, bonuses and other perks, according to the research from the think-tank that advocates for a fair economy.

And the top men and women did extraordinarily well in the years since the financial crisis, with compensation up 54.3 per cent since 2009 — while the typical worker is still experiencing the detrimental effects of a stagnant labour market and has seen wages drop an average of 1.7 per cent since 2009, according to the research.

Management gets more

The study points to the spillover effects of high CEO pay on high-income workers, such as other executives in the top 300 firms surveyed.

Their pay also has boomed, meaning the top one per cent, as well as the top 0.1 per cent, of American income earners are taking an increasingly large part of the gains made in the U.S. economy. As a result, income inequality is even more entrenched.

So while stock markets are booming and valuations have soared, all those gains go to the people at the top of the earning scale, instead of people who would spend it and stimulate the economy, according to authors Lawrence Mishel and Alyssa Davis.

They say CEO pay is increasing much faster than the pay of management executives, which seems to indicate it is not a reflection of the cost of retaining a skilled executive.

What relation to stock prices?

Nor does it seem to relate to share prices, as CEO compensation increased 99.7 per cent from 1978 to 2014, almost double stock market growth. The main relationship between CEO pay and stock performance is that executives cash in their stock options when stock valuations are high, the research found.

CEOs are paid more because they are able to extract concessions from their boards of directors, the authors said.

"If CEOs earned less or were taxed more, there would be no adverse impact on output or employment," they conclude.

The report recommends the U.S. implement higher marginal income tax rates at the very top and remove the tax break for incentive pay which has fuelled the growth of stock options as a means of rewarding executives.

It also recommends a higher tax rate on corporations whose CEO-to-worker pay scale has a high ratio. The SEC has proposed rules to ask listed companies to disclose this ratio annually.