Working for Pennies?

According to the institute for policy studies (IPS) study of executive pay, Executive Excess 2007, CEOs of the largest U.S. companies made in just one day what the average American worker earns in a year. The median annual income of the top 20 highest-paid CEOs of publicly held companies, in 2006 was $31.3 million, or more than $85,000 per day. This is 1,085 times higher than full-time black workers’ median earnings, which according to the Bureau of Labor Statistics is $28,808 per year.

Why are CEOs paid so much? “The notion that we have a ‘pay for performance’ system is a myth. CEO pay is out of control because the handful of board members who approve these compensation packages are often executives at other firms who have a personal stake in keeping paychecks in the stratosphere,” says Sarah Anderson, the director of the IPS global economy program and lead author of the annual IPS executive pay study.

The bulk of CEO pay comes as stock options, Anderson says, which “allow CEOs to reap massive payouts from short-term stock spikes or industry-wide movements even if their own company’s performance is poor.” Excessive CEO pay also damages worker morale, she says.

“If these pay levels were more reasonable, companies would have had more resources to invest in human resource development and worker pay.”

According to the study, in the decade that ended in 2006, CEO pay rose roughly 45%, adjusted for inflation. American workers’ earnings were up 7%, while the minimum wage decreased 7% from the value in 1996. When compared with minimum wage workers, “it’s two polar extremes,” says Wilhelmina Leigh, a senior research associate with the Joint Center for Political and Economic Studies.