CEO Pay Up 298%, Average Worker's? 4.3% (1995-2005)

There’s been a lot of ballyhoo lately about ballooning executive pay, so here’s a look at how CEO incomes rose over the years in relation to Joe Blow’s paycheck.

It looks like while CEO pay rose 298.2% by 2005, and corporate profits by 106.7%, the average worker pay has only risen by 4.3%.

The chart seems to show no direct relationship between CEO pay and profit performance, however, CEO pay does track nearly parallel with the S&P 500. That stock options are included in the CEO pay, and those have gotten more popular in recent years, might be a factor. Another is that the CEO population is smaller than that of the average workers, so naturally there’s going to be more volatility.

Profits or losses, stocks up or down, the average worker gets paid nearly the same. Maybe the breed of CEOs is just working harder while everyone else is just treading water… — BEN POPKEN

CEO Pay, Stock Prices, Corporate Profits, Worker Pay, and Inflation, 1990-2005 [FairEconomy] (Thanks to something_amazing!)

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  1. Disgruntled CC Employee says:

    How much do you want to bet that if Circuit City had cut it’s incompetent CEO’s pay in half, it would have paid for all of us competent employees they just fired?

  2. Mojosan says:

    So the moral of the story is…become a CEO.

  3. VG10 says:

    The mistake by a CEO will cost the company millions or even billions of dollars. A mistake by a hohum employee costs how much, an account here, an account there? A CEO can increase profits by millions or billions, how much is 1 customer support person going to do?

  4. Wow, makes you wanna work real hard doesn’t it?

    A friend of mine says the whole thing is a scam and this makes me think he’s right.

  5. winnabago says:

    Whole life is a scam, yep – top of the pile calls the shots. The secret is getting there!

  6. @VG10: That doesn’t help.

  7. Disgruntled CC Employee says:

    VG10: Before Circuit City started firing it’s good commission based employees it only had one loosing quarter that I am aware of. Now CC has loosing quarters on a regular basis. The only meaningful change that happened was the decision by upper management to move away from rewarding competent employees. I maintain that this is a move away from Capitalism to Oligarchy.

    Sorry if I just hijacked this thread. This is not meant as a flame, just a reply.

  8. crayonshinobi says:

    It’s interesting that the massive spikes in CEO pay also seem to coincide with the tech bubble during Clinton’s terms.

  9. lpranal says:

    @VG10- Essentially, your argument is irrelevant in this case- while it’s true that CEOs have both increased pressure and the potential to cause a lot of profit increase / damage, those factors have already been accounted for quite some time – the gap between CEO and “underling” has always been high, and CEOs always very well compensated. The problem is that the gap is growing for no good reason (other then the usuals, greed, corruption etc.)

  10. cynon says:

    @VG10: If that were the case, then when the CEOs f’d up — and they do, time and time again — they wouldn’t leave the companies they screwed over with multi-million dollar golden parachutes.

    Most of the CEOs in these large corporations have 1 skill: They can climb to the top of the corporate food chain.

    They can’t manage.
    They have zero technical skills
    Half the time, they don’t even understand the products the companies sell.
    They don’t give a shit about the employees.

    They don’t deserve the pay they get, plain and simple.

  11. lpranal says:

    oh, and as a side note, the days where 1 customer support person can’t do a lot of damage are fast becoming a thing of the past- this site is a shining example

    it’s a sad day when socialism starts looking better and better…

  12. Stepehn Colbert says:

    Best Buy and Walmart CEO’s need that extra money to pay off and clean up the bodies of their dead prostitutes. When lower level management shows the initiative that they have the competency, and the willingness to stealthily wheelbarrow around their decapitated problems, then they’ll see that type of pay increase.

  13. dsk says:

    One of the reasons this tracks the S&P and bubble so much is because the compensation data includes stocks, which is a major source of compensation for CEOs. When they screw up and the stock goes down, their compensation goes down as well. I’d be interested in seeing the same graph with only salary.

    Cynon – Your blanket statements suggesting that CEOs can’t manage, have zero technical skills, and don’t understand their products is pretty weak. You likely base it upon a few examples you read in the paper. This is a pretty good example of the availability heuristic. A handful of stories are sensationalized in the news, so everyone assumes that the majority of senior leadership at large corporations must be the same.

  14. freps says:

    One word…greed. Nuff said.

  15. bearymore says:

    It is interesting how greed spawns ideology. As CEO pay has been linked to stock prices, the conventional wisdom has become that it is management’s “fiduciary responsibility” to its shareholders to do everything possible to increase “shareholder value”, with share holder value being defined as short term gains even at the expense of long-term viability. In the eighties, before the so-called Reagan revolution took hold, they used to speak of stakeholder capitalism where it was management’s fiduiary responsibility to balance the needs of its three constituencies — share holders, employees, and customers in order to ensure long-term viability.

    Sic transit….

  16. ElizabethD says:

    The robber barons ride again.

    So discouraging… and appalling.

  17. Fast Eddie Felson says:

    One thing I haven’t seen mentioned: CEO pay numbers almost always include exercising incredible amounts of stock options (mostly granted in previous years).

    Which is not to say options aren’t compensation, but that the fact that CEO pay closely follows the S&P 500 becomes almost a truism.

  18. Mojosan says:

    One word…capitalism…nuff said.


    Fortune 500 CEO’s get what they get because that is their worth…wether you think so or not. Keep in mind that they pay 35% in federal income taxes on that income as well.

    Saying anyone can do their job is no different than saying “That Tiger Woods doesn’t deserve to make $75 million a year, anybody can hit a little ball in a hole!!!”

    Well, then go do it and you can make $75 million a year, keep $100,000.00 for yourself and donate $74,900,000.00 to charity.

  19. Matthew says:

    Mojosan, the “that’s capitalism” argument would be more persuasive if, in addition to profiting when his company triumphs in the market, an executive didn’t profit when his poor management drives it out of business. To earn the rewards of success, the executive ought to assume some of the risks of failure. THAT would be capitalism. That, though, is not the way our system works.

  20. kenposan says:

    mmm, and I got a whopping 2.4% this year.

  21. BillyMumphry says:

    @Matthew:

    Pay for performance has nothing to do with capitalism. It’s all about the free market. What will the market tolerate? If one board won’t hand it out a nice little consulting firm/speaking gig will more than make up for the difference.

    And while many seem to think this is somehow bad and getting worse, CEO’s of large companies are being held more accountable than ever via activist hedge funds. Check with Dan Loeb on that one.

    Bottom line: Nothing wrong with taking what’s given to you.

  22. Hoss says:

    The data is over 15 years relative to inflation.

  23. Hoss says:

    Sorry — I prematurely posted — I’m not going to retype my thoughts other than to ask why this is a consumerist thread?

  24. Bourque77 says:

    @Mojosan: Tiger is the only one who can do it like tiger. Also if he doesnt win he doesnt get paid nearly as much. Nike pays him very well because he is very good. Not because he fucks stuff up. I mean the home depot ceo got how much when he left? justify that. Or how about sprints ceo i mean hell they only lost 300,000 customers in the last quater of last year. Im sure he adjusted his pay because of that. Yes there are some fantastic ceos that make the company they work for millions upon millions. There also a lot of idiots that get millions upon millions to fuck stuff up.

  25. Mojosan says:

    Sorry, I disagree.

    Tom Hanks gets $25,000,000.00 a film wether the film makes money or not. Alex Rodriguez will get his $100,000,000.00 if he bats .400 or .225.

    Except for civil servants, capitalism ends up showing that people get paid what they are worth in the overwhelming majority of instances.

    Fortune 500 CEOs are at the top of their game. You don’t get to that level because you’re dumb or have not succeded in the past.

    Sometimes they make bad decisions and the board replaces them. Most of the time they make good decisions. In general, when you see a windfall like this it’s because the CEO did exactly what he was hired to do which is make the stock rise significantly. And his options went along for the ride.

    Folks saying “They R teh stoopid!” and claiming that big time CEO’s got their job because of some magical “old boys network” is simply sour grapes.

  26. BillyMumphry says:

    @Mojosan:

    totally agree…that last paragraph is particularly relevant to a lot of the postings on consumerist.

  27. Falconfire says:

    @BillyMumphry: Unfortunately for every one CEO you could compare that last paragraph to, I can give you 4 who prove the rest of the commentators on Consumerist are right and that CEO’s get rewards well beyond their contributions.

  28. nuton2wheels says:

    @cynon: I agree. The only purpose of management is to perpetuate itself. Most managers are brain dead, clueless drones in expensive gorilla suits who believe everything they learned in some inane MBA program about being “effective” and “motivational” in “the real world.”

    Mention of the corporate world always brings back memories involving the jerk offs I dealt with in college who refused to make contributions to group projects, rarely showed up for class, and whined about any assignments that required independent thought.

    Those clowns somehow managed to use mommy and daddy’s connections to obtain decent jobs shortly after graduation and are probably snorting lines of cocaine off their desks as we speak. Needless to say, I have very little faith in the system and am not surprised that our domestic jobs are being outsourced to India and China so that more money and a false sense of accomplishment can be spread around the upper echelons of the hierarchy.

  29. karimagon says:

    This might be totally off base, but does anyone know what may have caused the huge dip in pay in 2002-2003? I’m just curious.

  30. aestheticity says:

    so people like mojosan and billymumphry actually defend this state of affairs. thats all i need to know about those people.

  31. blchrist says:

    What I don’t understand about the sour grapes crowd is if the formula is so simple (don’t be evil/greedy/etc. and you’ll still make money), why don’t you take out a loan and start your own business?

    That’s one of the great things about capitalism, if someone is making an undeserved profit, there is almost always a way for other people to do the same thing.

  32. blchrist says:

    @karimagon: The corresponding dip in the S&P 500 looks like the most likely cause.

  33. ironworks says:

    The problem is that “shareholder value” in the short term (more productivity per dollar immediately, damn the consequences) and the long term (build healthy, sustainable relationships and retain good workers) are two completely different things, and more and more companies are solely focused on the short term.

    Circuit City’s firings were completely focused on the short term – maximizing a few upcoming quarters so that some on Wall Street will see improved numbers and buy the stock, thus inflating price in the short term. However, they were atrocious for the long term – it damages customer relations, creates a group of disgruntled ex-employees outside the company, and lowers the overall quality of the work force.

    As long as CEO compensation is tied to short term bumps in stock price, though, this kind of nonsense will continue to happen. It’s not about good, sound business fundamentals, it’s about getting a cheap bump in stock prices.

  34. dsk says:

    I would gladly take you up on that challenge FalconFire.

    I don’t think there is any question that CEO compensation is extremely high, but have to agree that if boards and shareholders are willing to structure and pay executives, then what’s the problem?

    I think one of the main issues is that boards/companies believe that CEOs have a great impact on the bottom line, when, in reality, they rarely do. Certainly they contribute, but a company that is failing is not going to be saved by hiring a particular CEO. I’d argue that the company’s likelihood of failure is based more on structure and company culture.

  35. cynon says:

    @dsk: Actually, no, I don’t. I base it on the state of the company that I’m working for. It’s a very large company, and it’s seriously screwed up.

    If you are unable to see that there are major problems with the way US corporations do business, then I suspect there’s little I could say to dissuade you. You might very well be one of those people who will go through life believing the hype — right up until the time when the rug gets pulled out from under you.

    But who knows, maybe that’ll never happen.

    Besides which the word ‘most’ in my earlier statement is a rather important one.

  36. dsk says:

    @cynon: If you simply based your statement on the state of the company you work for, then I would have to say that is a pretty small sample. I’m sorry to hear it is so screwed up. There are thousands of other companies out there that aren’t. I suppose I would probably flip your statement around and say that ‘most’ CEOs can manage and do know their products.

    I agree that there are many poorly run corporations out there, but who are you to dictate how they should be run? Perhaps you should take your snazzy management ideas and start an employee owned business. That way, you can take a small salary equal to an admin and distribute profit to your employees. After all, they do all the work.

    If you are unable to see that not all companies are run like yours, that capitalism generally rewards performance and that the market is merely paying CEOs what it can afford to, then I suspect there’s little I could say to dissuade you. You might very well be one of those people that constantly complains about the company you work for and has all sorts of ideas of what they could be doing better…but no one listens to you and you got passed over for a promotion several years ago and are bitter. I suggest you find a new line of work. Who knows though, maybe I just misread your postings and am judging you too quickly. I could be wrong.

    We would probably agree on one thing though: Command and control culture does not work anymore. The flatter the org chart, usually the better.

  37. JustThisGuy says:

    Could someone kindly explain why this is controversial? Seriously. No sarcasm here.

    Everything that might be potentially controversial about the graph is covered in the post; i.e., the fact that CEO pay neatly corresponds with the S&P index, and the increased volatility due to smaller sample size. The only somewhat non-trivial piece of information the chart imparts is that the S&P index (and CEO pay) rose and fell with the ‘net bubble, and seems to be rising again in anticipation of (take you pick): armed conflict; aggressive policing of interest rates; and/or the NEW AND EXCITING!!!! opportunities that WEB TWO POINT OH MY GOD DIDN’T WE LEARN THE FIRST TIME seem to be offering.

    I can note only two observations that should spark the outrage noted by some other commentors: the first is in line with Bearymore’s and Ironworks’ comments about the questionable move towards an emphasis on “shareholder value”, and the second is that the minimum wage sucks, has always sucked, and that the minimum wage laws need a major overhaul, one way or another.

    I would say that this graph would be more informative if it compared CEO salaries, or employed a similar formula to the one given to worker salaries (average hourly earnings of production workers x average weekly hours of production workers x 52); even then, the chart could be considered questionable at best . The graph, taken as is, is almost worthless, and shows a clear bias.

    Hey: I think there’s something wrong with the way many corporations conduct business as well, but it’s impossible to simplify such a complicated gestalt by blaming it merely on greed, opportunism, and boot-licking.

  38. Lastelf says:

    I do think that the argument of their rewards do not match their performance or the performance of the company is valid. But I also think the real issue is that the CEO’s & board members alike decide how much compensation will be given to thier employees based on what other company’s are paying for the same type of work. (Sounds like colusion to me). If a company is to perfom well ALL employees as well as Mgmt. needs to perform well and be compensated for “a job well done”. This model does not represent equal compensation accross the board for a solid performing company! To “reward” the CEO to the tune of on avg. 298% and then joe shmo gets a paultry 4.3%. This is an injustice and a slap in the face to all who work for someone else. Does anybody remember reading Animal Farm back in High school. CEO’s & BD. members are starting to look an awlful lot like the greedy Pigs turned human. You don’t have to be in bonds to be a slave

  39. dsk says:

    Well put…

  40. dsk says:

    @dsk: whoops…previous comment was in regard to JustThisGuy’s comment…

  41. TheSlate says:

    The point everyone seems to be missing is this isn’t about the absolute difference in pay between CEOs and the average worker, but their change in pay. It shows that on the US free market a CEO in 2005 is worth almost 300% more then a CEO in 1990, while the average worker is only worth 4.3% more. They both have the same responsibilities that they had 15 years previously. It seems that CEOs get the upside gain and pass on the short term downside risk to employees (as layoffs, raided pensions, etc) and shareholders (as lower company value.)

  42. RH181 says:

    Completely agree with “THESLATE”. Especially the last statement. Really, the only thing I have to say is that as long as we don’t get together (IN VERY… VERY… VERY large groups (I.e., congress/senate and pass a law (which can’t be manipulated like current tax laws)) at the same time and push the change… it will never happen. In 2015, we’ll be seeing that CEO’s pay won’t just be 300%… but it’ll be 300% or more from NOW (which is already 300% more than 1990). Scary… The committee’s who make the decisions, etc., are made up of people who are very rich as well. How about letting the employee’s decide who get’s what level of raise? Bet you’d see better benefits, better work conditions, less layoff’s, and higher pay/bonus’… but yeah.. that’s never going to happen.