I wrote a few days ago on CD about how both Hillary Clinton and Bernie Sanders have been criticizing “excessive CEO pay.” A campaign ad for Hillary tells us that “On average, it takes 300 Americans working for a solid year to make as much money as one top CEO. It’s called the wage gap.” In a Tweet last month, Bernie Sanders lamented that “CEOs make 300 times what their workers make. That is simply immoral and must be dealt with.” A few years ago, the AFL-CIO made this statement:
America is supposed to be the land of opportunity, a country where hard work and playing by the rules would provide working families a middle-class standard of living. But in recent decades, corporate CEOs have been taking a greater share of the economic pie while wages have stagnated and unemployment remains high. Today’s CEO-to-worker pay ratios are simply unconscionable.
OK, let’s assume that Hillary and Bernie are correct that CEO pay in America is excessive and immoral, and is a problem that “must be dealt with,” according to Sanders. Let’s also accept the AFL-CIO’s statements above that today’s CEO-to-worker pay ratio is unconscionable, and that America’s corporate CEOs have been gobbling up a greater and greater share of the payroll pie at the expense of the Average Worker in recent decades.
In that case, let’s analyze what would happen if we could either: a) confiscate 100% of the compensation paid in 2014 to the S&P 500 CEOs and redistribute all of that income to the 97,734,00 production and non-supervisory workers cited by the AFL-CIO as America’s rank-and-file workers, or b) cap the CEO-to-worker pay ratio at either the “less unconscionable” 1980 level of 42:1 or the “less immoral” 1960 ratio of 20:1 and confiscate and redistribute the excess CEO pay above those caps to the 97.734 million rank-and-file hourly workers. The table above summarizes how that confiscation and redistribution of CEO pay would affect the average worker’s annual income and hourly pay rates. Here’s a summary:
- The AFL-CIO reports that CEOs of companies in the S&P 500 received $13.5 million in average total compensation in 2014, and those 500 CEOs as a group would have therefore generated $6.75 billion in compensation. If that total amount of almost $7 billion was confiscated and redistributed equally to the 97.734 million workers that the AFL-CIO uses for its “average worker pay” calculation, each of those rank-and-file hourly workers would have received $69.07 in extra annual pre-tax income in 2014, or about 3.5 cents per hour for a 40-hour workweek and about 4.2 cents per hour for a 33.7-hour workweek (which is the average workweek for the AFL-CIO’s rank-and-file workers, many of whom work part-time), see first row of data in the table above.
- If we could impose the 1980 CEO-to-worker pay ratio of 42:1, the average S&P 500 CEO compensation in 2014 would have been only about $1.5 million (42 x $36,134 in average worker pay according to the AFL-CIO), and the 500 CEOs would have earned only $759 million in 2014, instead of $6.75 billion. Distributing the nearly $6 billion in excess earnings in 2014 to the 97.734 million rank-and-file workers would have increased their annual pre-tax income by $61.30, and their hourly pay by 3.1 cents or 3.7 cents before tax, depending on the number of weekly work hours (see middle row of data in the table above).
- Going all the way back to the 1960s, and capping the CEO-to-worker pay ratio at 20:1 would mean that the average annual CEO compensation in 2014 would have been only about $723,000 (20 x $36,134 average worker pay), generating nearly $6.4 billion in excess CEO pay to redistribute to average workers. Each of the 97.734 million rank-and-file workers would have gotten an increase in their annual pay of about $65 in 2014, and their hourly pay would have gone up by less than 4 cents, before tax (see last data row in the table above).
Source: New AEI Feed
What if the compensation for all S&P 500 CEOs were confiscated and redistributed to rank-and-file workers?