While pay for the typical CEO of a company in the Standard & Poor's 500 stock index surged 9 percent last year to
Those figures help reveal a widening gap between the ultra-wealthy and ordinary workers around the world. That gap has fed concerns about economic security — everywhere from large cities where rents are high to small towns where jobs are scarce.
Here are five reasons why CEOs are enjoying lavish pay increases and five reasons many people are stuck with stagnant incomes.
WHY CEOs ARE GETTING HUGE RAISES
1. They're paid heavily in stock.
Unlike most workers, chief executives receive much of their compensation in the form of company stock — a lot of it. The theory behind compensating CEOs this way is that it aligns the interests of senior management with those of shareholders, which would seem beneficial for a company.
Yet accounting scandals of the early 2000s showed that some executives gamed the system, ultimately at shareholder expense. Executives at firms such as
Still, the bonanza continues. The average value of stock awarded to CEOs surged 17 percent last year to
The S&P 500 jumped 30 percent last year, compounding the size of the CEOs' paydays. Consider
The stock rally has been fueled in part by historically low interest rates engineered by the Federal Reserve. Those rates led many investors to shift money out of low-yielding bonds and into stocks.
2. Peer pressure.
Corporate boards often set CEO pay based on what the leaders of other companies make. No board wants an "average" CEO. So boards tend to want to pay their own CEO more than rival CEOs who are chosen for benchmarking compensation packages.
This will "naturally create an upward bias" in pay,
3. The superstar effect.
Companies often portray their CEOs as the business equivalents of
The era of digital communication and private jets has given leading athletes, entertainers and business people the global reach to generate outsized profits. The late
4. Friendly boards of directors.
Some board members defer to a CEO's judgment on what his or her own compensation should be. There's a good reason: Many boards are composed of current and former CEOs at other companies. And in some cases, board members are essentially hand-picked or at least vetted by the CEO. Not surprisingly, the boards' compensation committees offer generous bonuses.
5. Stricter scrutiny.
Even companies with vigilant boards and an emphasis on objectively assessing CEO performance might shower their chief executives with money. When a CEO faces more scrutiny and a greater chance of dismissal, the companies often raise pay to compensate for the risk of job loss, according to a 2005 article by
WHY MANY OF US AREN'T GETTING A RAISE
1. Blame the robots.
Millions of factory workers have lost their spots on assembly lines to machines. Offices need fewer secretaries and bookkeepers in the digital era.
Robots and computers are displacing jobs that involve routine tasks, according to research by
2. High unemployment.
The aftermath of the Great Recession left a glut of available workers. Businesses face less pressure to give meaningful raises when a ready supply of job seekers is available. They're less fearful that their best employees will defect to another employer.
The current 6.3 percent unemployment rate, down from 10 percent in
Companies can cap wages by offshoring jobs to poorer countries, where workers on average earn less than the poorest Americans. Consider
Some analysts say this decades-long trend may have peaked. But many economists say the need for
4. Weaker unions.
Organized labor no longer commands the heft it once did. More than 20 percent of U.S. workers were unionized in 1983, compared with 11.3 percent last year, according to the
5. Low inflation.
For the past five years, the government's standard inflation gauge, the consumer price index, has averaged an ultra-low 1.6 percent. When inflation is high, employees tend to factor it into requested pay raises. But when inflation is as low as it has been, it almost disappears as a factor in pay negotiations. Workers typically settle for less than if inflation were higher.
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