Since 1994, the nonprofit Institute of Policy Studies (IPS) has published annual reports that analyze the latest data on corporate CEO compensation. Back in 1994 when these reports began, IPS reported that the average pay of the companies surveyed was a scandalously high $1.9 million (about $3.5 million in current dollars). This year’s survey finds that average CEO pay is $10.6 million—three times as much, even after adjusting for inflation.
For this year’s report, the IPS research team of Sarah Anderson, Sam Pizzigati, and Brian Wakamo focused on 300 firms where median wages were the lowest in 2020. The firms selected are all among the 3,000 largest, publicly listed firms (Russell 3000 index) in the United States. They included many household names—Amazon, Estée Lauder, Nike, Walmart, Hilton, McDonald’s, Chipotle, Shake Shack, Papa John’s, Domino’s, Coca Cola, The Gap, Under Armour, Ralph Lauren, Abercrombie & Fitch, Kroeger, Lowes, Home Depot, Dollar Tree, Dollar General, Auto Zone, Advance Auto Parts, Macy’s, Target, and Nordstrom are just a sampling of the companies surveyed.
Why focus on these firms? Because, as the report’s authors explain, “the conventional wisdom holds that low-wage workers have benefited economically during the pandemic” (4). Focusing on these firms, they add, allows them to test whether workers at historically low-wage firms saw inflation-adjusted earnings gains.
What did the researchers find? The good news is that workers at many firms did see their wages rise, but at 106 of the 300 firms wage increases did not keep pace with inflation, and at 69 of those 106 firms, wages actually fell even in nominal dollar terms.
Meanwhile, once again, CEOs saw outsized gains. In 2020, the average CEO at these firms took home 604 times the salary of what the median worker at their firms earned. In 2021, that ratio climbed to 670-to-1. All told, at the 300 surveyed firms, CEO compensation averaged $10.6 million, up $2.5 million from the $8.1 million average a year before, even as the median worker at these firms earned less than $24,000
Some firms were even more extreme in the gap between CEO and worker pay. Two examples offered in the report are the following:
- Amazon: In 2021, founding CEO Jeff Bezos stepped down, replaced by Andy Jassy. In his first year on the job, Jassy was amply rewarded by Amazon, with a compensation package of $212.7 million, the largest received by any of the 300 CEOs in the survey. This works out as 6,474 times more than the $32,855 take-home pay of the median Amazon worker.
- Estée Lauder: CEO Fabrizio Freda received compensation of $66 million, a 258 percent increase from the previous year’s total of $18.4 million. Freda’s haul came to 1,965 times as much as the firm’s $33,586 typical employee’s pay. The $47.6 million increase in compensation came even as the firm reduced its workforce from 75,000 to 62,000 workers. In short, Freda’s pay increase alone ate up about one tenth of the “savings” resulting from the company’s 13,000-person workforce reduction.
The Rise of Stock Repurchases
Why does CEO pay keep increasing faster than median worker pay? There are many factors behind the increasing concentration of corporate income at the top, but one increasingly prominent tool involves stock repurchases—colloquially known as “buybacks.” According to Standard & Poor’s (S&P Global), the year 2021 saw record transactions in which companies repurchased their own stock, with total repurchases estimated at $881.7 billion. Among the leading users of the tactic are such prominent tech firms as Apple, Google (Alphabet), Facebook (Meta), and Microsoft.
As Jerry Useem explained a few years ago in The Atlantic, a buyback, “by reducing the number of shares outstanding in the market … lifts the price of each remaining share.” Of course, this comes at a price—namely, capital spent to buy back stock is not available for reinvesting in the company. In the long run, buying back stock hurts corporate stock values, but in the short run, of course, it increases those values.
How does this benefit CEOs? Well, it helps to understand that the overwhelming majority (typically at least 90 percent) of CEO pay takes the form of stock options or other forms of non-salary compensation.
Back in 2018, Useem reports, US Securities & Exchange Commission (SEC) head Robert Jackson Jr. instructed his staff to examine buybacks. SEC staff found “that in the eight days following a buyback announcement, executives on average sold five times as much stock as they had on an ordinary day.” According to Jackson, this meant that executives were able to “personally capture the benefit of the short-term stock-price pop created by the buyback announcement.”
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How did this dynamic affect the companies analyzed in the IPS report? The researchers focused their attention on the 106 firms where workers saw their real wages decline in 2021. Of these firms, 67 companies chose to buy back stock, even as their workers’ wages failed to keep pace with inflation.
In some cases, the amount of the repurchases was extraordinary. At Target, for instance, worker pay, adjusted for inflation (which was 4.7 percent in 2021), fell 0.8 percent, but the company spent $7.2 billion in 2021 buying back its own stock—this would have been enough money to give each member of its 450,000-person workforce a $16,000 raise. At Best Buy, worker pay, adjusted for inflation, fell 6.5 percent. Yet Best Buy spent $3.5 billion in 2021 buying back its own stock, an amount that would have been enough to offer each of its 105,000 workers a $32,270 raise.
At Lowe’s, worker pay, adjusted for inflation, fell 12.1 percent. Yet the company spent $13 billion to buy back stock, which would have been enough to offer each of its 350,000 workers a $40,000 raise. Meanwhile, even as worker pay suffered at these companies, company CEOs at all three firms had earnings in 2021 that ranged from $15 million to close to $20 million.
Some of these firms were signatories to the Business Roundtable’s Statement on the Purpose of the Corporation, a prominent industry-wide statement of corporate social responsibility released in August 2019, which includes a commitment of “investing in our employees.” For example, both Best Buy and Target are signatories, even though they appear to have prioritized stock buybacks over employee compensation. Another prominent signatory of that statement was Jeff Bezos of Amazon.
A Government Helping Hand
The IPS report also took a look at government contracting. Sure enough, low median wages and high CEO-worker pay ratios are no impediment to securing federal government contracts. All told, 40 percent of the 300 firms analyzed received federal contracts between October 1, 2019, and May 1, 2022. The combined value of these contracts over this period: $37.2 billion. Amazon, for instance, generated over $10 billion in government contracts over the same period; it is the second largest contractor of the 300 firms analyzed.
The largest government contractor of the surveyed firms was Maximus, which had $12.3 billion in federal contract income over the same three-and-a-half year time period. For Maximus, federal contracts made up 45 percent of all revenue in fiscal-year 2021. These contracts included servicing federal loans and operating call centers for the federal health insurance marketplace and Medicaid. The median salary for the firm’s 49,800 workers was $38,059 in 2021. Its CEO’s pay was a “modest” $7.9 million.
The authors note that the federal government could use its procurement power to require contractors to have greater pay equity. Under an executive order issued by President Joe Biden in 2021, the federal government now requires most contractors to pay their workers $15 an hour. Still, the IPS report authors note that “Lucrative government deals boost corporate earnings and share prices, and those increases, in turn, inflate CEO pay” (9).
Building Power for Change
In the report, Anderson and her colleagues offer a detailed six-page list (24-29) of possible reforms. Policies that the team advocates include changes to tax law to curb CEO compensation (such as levying taxes on firms with excessive CEO-worker pay ratios), disclosure rules (such as increasing public disclosure of executive pay data), leveraging government procurement (such as favoring firms in procurement that have lower CEO-worker pay ratios), and changes to stock market rules (such as restricting buybacks). If approved by Congress and signed into law, such measures could help. Of course, the successful corporate resistance to higher taxation in 2021 speaks to the evident political challenges—and the need to confront corporate power directly.
In considering policy options and the challenge for movement organizing, it is important to keep in mind the degree of shift that has occurred. Pizzigati, one of the report authors, points out in a separate blog that management theorist Peter Drucker was concerned when he realized that the CEO-worker pay ratio had climbed from 21:1 in 1965 to 31:1 in 1978. Drucker himself believed it was important that CEOs earn no more than 25 times what their workers earn. Of course, present-day ratios are 10 to 20 times that level.
The report does not really discuss how to build power to directly counter corporations in the political sphere and shift this larger pattern. As the IPS report demonstrates, public support for the types of policies proposed—indeed, policies more far reaching than what the report authors propose—is there. The report, for instance, points out that 62 percent of Republicans and 75 percent of Democrats in one poll favored a mandatory cap on CEO pay relative to worker pay, regardless of company performance (3). The challenge, in short, is not building public support for policy change, but rather breaking the corporate stranglehold on the US political system.