A new survey reveals Americans believe CEOs make way too much money — but that belief is based on figures that undercut true CEO compensation by as much as 90 percent.
According to the survey of 1,200 people by Stanford University’s Rock Center for Corporate Governance, people in the United States are clueless about incomes of the heads of major corporations — but they’re disgruntled already. In fact, despite their estimates of CEO pay being around one-tenth of the actuality, 74 percent of Americans believe corporate chief executives “are not paid the correct amount relative to the average worker,” the study states.
Though most feel CEO earnings must be reined in, the study found the public divided over the prospect of government intervention to accomplish the reduction.
“There is a clear sense among the American public that CEOs are taking home much more in compensation than they deserve,” explained Professor David F. Larker of the Stanford Graduate School of Business. “While we find that members of the public are not particularly knowledgeable about how much CEOs actually make in annual pay, there is a general sense of outrage fueled in part by the political environment.”
As the Atlantic noted of the study, respondents, on average, “thought CEOs earned nearly $1 million, whereas the real average is about $10 million.”
Perhaps such a hefty paycheck might be difficult for a typical wage-earner to wrap their head around, considering top CEOs now rake in 300 times the average employee. In 2015, the Economic Policy Institute found chief executives of top corporations averaged $16.3 million in 2014.
In fact, from 1978 through 2014, inflation-adjusted pay for CEOs proves they’re making a killing. While the average worker’s annual compensation rose 10.9 percent during that time period, CEO income increased by a whopping 997 percent — “a rise almost double the stock market growth.”
“Corporations and their boards need to do a better job explaining and justifying CEO pay arrangements,” said corporate governance lecturer at the Stanford Graduate School of Business, Nick Donatiello. “The vast majority of Americans think CEO pay levels are a problem. Some are comfortable with the idea that CEOs should substantially share in any upside value they create, while many others favor significant reductions in the amount of pay a CEO can receive relative to the average worker. Clearly companies have not been successful communicating how much value their CEO creates and how much compensation is required, given the market for talent, to attract and motivate the right people.”
A mere 16 percent of those surveyed — a sampling which included people earning a diverse range of incomes — believe CEOs are appropriately compensated for the job. Just under two-thirds felt the enormous pay disparity necessitates the implementation of some sort of maximum earnings cap. Of those espousing a cap, most felt CEO pay should be around six times that of the average worker — or 17.6 times, as the study notes, “based on average numbers.”
Despite their lowball estimates of actual CEO pay, the typical U.S. worker couldn’t justify the outrageous pay disparity — and corporations, thus far, haven’t really needed to. As Donatiello emphasized,
“Clearly companies need to make a stronger case for how pay is tied to performance — to the extent it is.”