Center for American progress  [Printer-friendly version]
May 15, 2006


[Rachel's introduction: Corporate profits and employment are strong.
Yet the American dream of a steady job with benefits like healthcare
and vacation pay is growing more elusive for many people. While
corporate executives are taking home record paychecks, the middle and
working classes are treading water at best.]

Report Suggests Correlation Between Higher CEO Compensation and
Declining Unionism

A recent report by John Burton and Christian Weller for the Center
for American Progress describes how the dreams of upward mobility for
middle-class families are plummeting due to stagnant wages and
vanishing benefits, while corporate CEOs are enjoying record levels of
compensation and corporations are reporting record profits.

The findings show compensation for CEO's is spiraling out of control:

** At the 350 largest public companies, the average CEO compensation
is $9.2 million. Compensation for oil and gas execs increased by 109
percent between 2003 and 2004.

** In 2004, the average CEO received 240 times more than the
compensation earned by the average worker. In 2002, the ratio was 145
to one.

** These levels of CEO compensation are not the norm for the
industrialized world. Typically, CEO pay in other industrialized
countries is only about one third of what American CEOs make.

** Highly-compensated CEOs are not being rewarded for performance with
the interests of shareholders in mind, the "textbook" explanation of
CEO compensation, according to an extensive body of research and

** After-tax profits are booming and corporate America can easily
afford to offer fair wages and benefits to rank and file employees.
Unfortunately, while CEOs have enriched themselves, middle-class
families have taken hard hits to their paychecks, their health
coverage, and their pension plans.

The study suggests a couple of factors which are contributing to
excessive compensation. There is a negative correlation between
executive compensation and unionization; reducing union workers
results in higher pay for CEOs. The fraction of shares held by large
institutional investors has a direct relationship with the fraction of
executive pay in the form of stock options.

The report looks at the complexities for outsiders to assess the true
level of compensation. It discusses the difficulties in understanding
what a fair compensation package is due to the various forms of
compensations and compensatory perks outside of a firm. It also looks
at different forms of payments being made to CEOs as opposed to forms
used by other firms.

The report also discusses the executive entitlement system in which
the elite sub-culture of executives and directors are often unable to
objectively assess the individual performance of their fellow elites
and how this culture designs its own norms, hierarchies, and

It points out that in 2003, if a CEO would have made only $2.3 million
the average pay for worker should have been $51,148 (estimate by
Sklar, 2004.) But as CEOs got richer, more families were falling into
poverty. Median income declined by about $600 in inflation-adjusted
dollars, or 1.2 percent between 2001 and 2003, according to Census
data. In fact, from the end of 2003 through March 2005, inflation-
adjusted weekly earnings for the "production non-supervisory worker"
(this includes 80 percent of the American workforce) actually declined
by 0.9 percent (Bureau of Labor Statistics, 2005).

The report concludes, "As fair-minded people, Americans believe that
there should be a correlation between the job well done and the
reward. The trend in excessive CEO compensation reflects a culture of
greed and a growing inequality that poses a threat to the viability of
the American dream for many middle-class families. As a nation, we
must move forward with a progressive vision that restores our values
of hard work and fair play and insures that the promise of economic
opportunity is extended to all."

Click here to view a copy of the report.