The average CEO of a major company in America makes 273 times more than the average employee, according to a recent report by the Economic Policy Institute.
From 1978 to 2012, the pay for CEOs increased 875 percent versus the 5.4 percent growth in a typical worker’s pay during the same period.
In the 1980s, the heyday of trickle down economics, a CEO made about 30 times more than average worker. Looking over compensation in the top 350 firms, the EPI found that the average CEO earned $14.1 million in 2012. CEO pay has increased 14.6 percent from 2010 to 2012, while options granted have fallen about 4.4 percent.
So what is it that makes a chief executive officer so much more valuable than the average employee? Some say that because businesses are larger and wealthier than 30 years ago, executives are paid handsomely because competence is valued about all else. Incompetence on the part of a CEO impacts more lives than it ever did before.
Others argue that as businesses earn more money and continue to distribute it only to a select few, the CEOs, the trickle-down theory touted by President Ronald Reagan is disproven – tax breaks and other economic benefits for the businesses and the wealthy do not lead to increased money trickling down to the middle class.
The Center for American Progress does not believe in trickle-down economics but rather in a theory called “management power.” More or less, this means CEOs have so much power they set their own pay packages and use compensation consultants to butter their bread.
The report does not mean that shareholders will necessarily give a flip about CEO pay. Shareholders do not typically care about CEO compensation if the stock market is performing well, according to the National Bureau for Economic Research in 2005.
“During a period of market booms, the demand for executives goes up and firms need to pay more in order to retain and hire executives,” wrote the National Bureau for Economic Research. “Furthermore, investors and other outsiders are generally less bothered by excessive and distorted pay arrangements when markets are rising rapidly.”