It’s (Really) Good to Be the Boss

WASHINGTON, Aug 29 (IPS) – The pay gap between workers and employers in the U.S. remains enormous, with the typical chief executive officer (CEO) of a top firm earning more in a single workday than the average U.S. worker takes home in an entire year, according to a new study on executive compensation released Wednesday.

Not only do top CEOS receive a total income that is about 364 times that of the average worker, their earnings also far outstrip those of government leaders, nonprofit executives, and even their European counterparts, the study found.

These findings come as politicians in the U.S. and Europe increasingly debate CEO pay, an issue that for many has come to exemplify the pitfalls of an economy that has produced impressive growth while seemingly failing to improve the fortunes of the bulk of the population.

The study, which was released by the Institute for Policy Studies (IPS) and United for a Fair Economy (UFE) to coincide with the Labor Day holiday in the U.S., found that CEOs of the 500 largest U.S. companies earned an average of 10.8 million dollars in total compensation in 2006, and the CEOs of the 20 largest companies earned an average of 36.4 million dollars.

By comparison, the average worker in the U.S. earned 29,544 dollars in the same time period.

The 36.4 million dollars earned by the top 20 U.S. CEOS also far exceeded the average earnings of the 20 highest-paid European CEOs (12.5 million dollars), U.S. non-profit leaders (965,698 dollars), members of the U.S. executive branch of government (198,369 dollars), and generals in the U.S. military (178,542 dollars).

Sarah Anderson of the Institute for Policy Studies, the lead author of the study, said that the vast pay gap between the top private-sector and public-sector jobs creates serious problems for the country.

“First of all, [the lower compensation] is a serious disincentive to take government and not-for-profit jobs, and thus drains leadership talent out of the not-for-profit world,” she told IPS. “Second, it contributes to a ‘revolving door’ between government and the private sector” as policymakers often opt for more lucrative business and lobbying jobs.

But being the CEO of a large company is not the most lucrative job in United States, the study found. That honour went to the managers of the country’s top hedge funds, which are exclusive investment groups that operate in a largely unregulated environment.

The average income of the 20 top-earning hedge fund and private equity managers was 655.5 million dollars in 2006, the study found. Four such managers earned over 1 billion dollars in the last year alone.

Although recent changes to the rules for reporting income make it difficult to precisely compare this year’s CEO-worker wage gap to previous years, Anderson said that the trends had not changed significantly.

“We certainly haven’t seen any real retreat on CEO pay,” she said. “Even companies that are heading towards crisis are continuing to pay huge sums.”

This year’s 364-to-1 CEO-to-worker pay gap remains a massive increase from previous decades: in 1990, the rate was 107-to-1, and in 1980, it was only 40-1, according to the study.

The findings about CEO pay come in the context of a larger debate over growing income inequality in the U.S.

Defenders of the George W. Bush administration’s economic policies point to robust levels of growth in recent years, while critics contend that most if not all of the gains have gone to the richest citizens.

Research published by the economists Emmanuel Saez and Thomas Piketty earlier this year showed that the wealthiest U.S. citizens have increased their share of national income to levels unseen since the 1920s. The top 10 percent now account for 48.5 percent of income, and the top one percent for 21.8 percent of income.

And although the total reported income in the U.S. increased by almost 9 percent in 2005, Saez and Piketty found that the incomes of those in the bottom 90 percent of earners actually decreased slightly that year.

The CEO-worker wage gap has become a potent representation of this increased income inequality, and U.S. politicians have seized upon the issue as the 2008 presidential campaign gets underway.

Senators Hillary Clinton and Barack Obama and former Senator John Edwards, the three leading candidates for the Democratic Party presidential nomination, have all called for increased scrutiny on CEO pay.

Obama is sponsoring so-called “say on pay” legislation in the Senate, which would let corporate shareholders hold nonbinding advisory votes about executive compensation plans. The legislation has already passed in the House of Representatives, although President Bush has expressed his disapproval of the bill and may veto it if it passes in the Senate.

Other Democrats have also proposed legislation on the issue. A bill introduced by Representative Barbara Lee, a Democrat from California, would limit how much executive pay companies can claim as tax-deductible, and a bill introduced by Sander Levin, a Democrat from Michigan, would tax the earnings of hedge fund managers at the rate for income (currently 35 percent) rather than the rate for capital gains (currently 15 percent).

The increase scrutiny of CEO pay has not been limited to the U.S., as European leaders have also focused on the issue — although, as the IPS/UFE study documents, the earnings of European CEOs are relatively small compared to their U.S. counterparts.

Even French President Nicolas Sarkozy, who is known as a relative fiscal conservative, has pledged to pass a law limiting the severance packages of top executives.

“It is fascinating that we suddenly have this unprecedented debate about CEO pay in both the U.S. and Europe,” said Anderson, the author of the study. “It may be a sign that our political leaders are finally catching up to where the public has been for quite a while on these issues.”


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