It's (really) good to be a US boss
By Daniel Luban

WASHINGTON - The pay gap between workers and employers in the United States remains enormous, with the typical chief executive officer of a top firm earning more in a single workday than the average US worker takes home in an entire year, according to a new study on executive compensation released on Wednesday.

Not only do top CEOs receive a total income that is about 364 times that of the average worker, their earnings also far outstrip 



those of government leaders, non-profit executives, and even their European counterparts, the study found.

These findings come as politicians in the US and Europe increasingly debate CEO pay, an issue that for many has come to exemplify the pitfalls of an economy that has produced impressive growth while seemingly failing to improve the fortunes of the bulk of the population.

The study, which was released by the Institute for Policy Studies (IPS) and United for a Fair Economy (UFE) to coincide with the Labor Day holiday in the US this coming Monday, found that CEOs of the 500 largest US companies earned an average of US$10.8 million in total compensation in 2006, and the CEOs of the 20 largest companies earned an average of $36.4 million.

By comparison, the average worker in the US earned $29,544 in the same time period.

The $36.4 million earned by the top 20 US CEOS also far exceeded the average earnings of the 20 highest-paid European CEOs ($12.5 million), US non-profit leaders ($965,698), members of the executive branch of the US government ($198,369), and generals in the US military ($178,542).

Sarah Anderson of the Institute for Policy Studies, the lead author of the study, said the vast pay gap between the top private-sector and public-sector jobs creates serious problems for the country.

"First of all, [the lower compensation] is a serious disincentive to take government and not-for-profit jobs, and thus drains leadership talent out of the not-for-profit world," she said. "Second, it contributes to a 'revolving door' between government and the private sector" as policymakers often opt for more lucrative business and lobbying jobs.

But being the CEO of a large company is not the most lucrative job in United States, the study found. That honor went to the managers of the country's top hedge funds, which are exclusive investment groups that operate in a largely unregulated environment.

The average income of the 20 top-earning hedge-fund and private-equity managers was $655.5 million in 2006, the study found. Four such managers earned more than $1 billion in the past year alone.

Although recent changes to the rules for reporting income make it difficult to compare precisely this year's CEO-worker wage gap with previous years, Anderson said the trends have not changed significantly.

"We certainly haven't seen any real retreat on CEO pay," she said. "Even companies that are heading towards crisis are continuing to pay huge sums."

Last year's 364:1 CEO-to-worker pay gap is a massive increase from previous decades: in 1990, the ratio was 107:1, and in 1980, it was only 40:1, according to the study.

The findings about CEO pay come in the context of a larger debate over growing income inequality in the US.

Defenders of the George W Bush administration's economic policies point to robust levels of growth in recent years, while critics contend that most if not all of the gains have gone to the richest citizens.

Research published by economists Emmanuel Saez and Thomas Piketty this year showed that the wealthiest US citizens have increased their share of national income to levels unseen since the 1920s. The top 10% now account for 48.5% of income, and the top 1% for 21.8% of income.

And although the total reported income in the US increased by almost 9% in 2005, Saez and Piketty found that the incomes of those in the bottom 90% of earners actually decreased slightly that year.

The CEO-worker wage gap has become a potent representation of this increased income inequality, and US politicians have seized on the issue as the 2008 presidential-election campaign gets under way.

Senators Hillary Clinton and Barack Obama and former senator John Edwards, the three leading candidates for the Democratic Party presidential nomination, have all called for increased scrutiny on CEO pay.

Obama is sponsoring so-called "say on pay" legislation in the Senate, which would let corporate shareholders hold non-binding advisory votes about executive-compensation plans. The legislation has already passed in the House of Representatives, although President Bush has expressed his disapproval of the bill and may veto it if it passes in the Senate.

Other Democrats have also proposed legislation on the issue. A bill introduced by Democratic Congresswoman Barbara Lee would limit how much executive pay companies can claim as tax-deductible, and a bill introduced by Sander Levin, another Democrat, would tax the earnings of hedge-fund managers at the rate for income (currently 35%) rather than the rate for capital gains (currently 15%).

The increased scrutiny of CEO pay has not been limited to the US, as European leaders have also focused on the issue - although, as the IPS/UFE study documents, the earnings of European CEOs are relatively small compared with their US counterparts.

Even French President Nicolas Sarkozy, who is known as a relative fiscal conservative, has pledged to pass a law limiting the severance packages of top executives.

"It is fascinating that we suddenly have this unprecedented debate about CEO pay in both the US and Europe," said Anderson, the author of the study. "It may be a sign that our political leaders are finally catching up to where the public has been for quite a while on these issues."

(Inter Press Service)