Policies that limit CEOs' ability to collude with corporate boards to extract excessive compensation are needed to prevent the U.S. from becoming a winner-take-all society. These policies could include reinstating higher income tax rates at the very top, using tax policy to incentivize lower CEO pay, making shareholder votes on CEO compensation more binding, and using antitrust enforcement and regulation to rein in the market power of the largest firms.
Chief executive officers (CEOs) of the largest firms in the U.S. earn much more today than they did in the mid-1990s and many times what they earned in the 1960s or 1970s. They also earn far more than the typical worker,1 and their pay -- which relies heavily on stock-related compensation -- has grown much more rapidly than a typical worker's pay. Rising CEO pay does not reflect a rising value of skills or contributions to firms' productivity. What has changed over the years is CEOs' use of their power to set their own pay. In economic terms, this means that CEO compensation reflects substantial "rents" (income in excess of actual productivity). This is concerning since the earning power of CEOs has been driving income growth at the very top -- a key dynamic in the overall growth of inequality. The silver lining in this otherwise unfortunate trend is that CEO pay can be curtailed without damaging economywide growth.
We focus on the average compensation of CEOs at the 350 largest publicly owned U.S. firms (firms that sell stock on the open market) by revenue. Our source of data is the S&P Compustat ExecuComp database for the years 1992 to 2023, and survey data published by The Wall Street Journal for selected years back to 1965. We maintain the sample size of 350 firms each year when using the Compustat ExecuComp data.2
We use two measures of CEO compensation: one based on compensation as "realized," and the other based on compensation as "granted." Both measures include the same measures of salary, bonuses, and long-term incentive payouts. The difference lies in how each measure treats stock awards and stock options -- major components of CEO compensation that change value from when they are first provided, or granted, to when they are realized.
The realized measure of compensation includes the value of stock options when they are actually realized or exercised, capturing the change in value from when the options were granted to when the CEO invokes the options, usually after the stock price has risen and options value has increased. The realized compensation measure also values stock awards at their value when vested (usually three years after being granted), capturing any change in the stock price as well as additional stock awards provided as part of a performance award.
The granted measure of compensation values stock options and restricted stock awards by their "fair value" when granted. This fair value must be estimated based on several assumptions about the future path of stock prices, interest rates, and other variables. Compustat estimates of the fair value of options and stock awards as granted are derived from the Black-Scholes model. For details on the construction of these measures and benchmarking to other studies, see Sabadish and Mishel (2013).
In some sense, realized measures of pay are backward-looking, while granted measures are forward-looking. Realized measures of stock-related pay in 2023 are essentially measuring how much money CEOs were able to bring home based (largely) on the past year's stock options and awards. Granted measures of stock-related pay in 2023 are essentially estimating how much new options and awards are likely to pay off in future years. Because neither measure perfectly maps onto a measure of how much a CEO "earned" in a single particular year, reporting both can be useful for understanding the full picture.
Table 1 presents the trends in inflation-adjusted realized and granted CEO compensation for selected years from 1965 to 2023 (columns 1 and 2).3 Real changes in the stock market are as measured by the S&P 500 Index and the Dow Jones Industrial Average in columns 3 and 4. In general, CEO compensation follows the movement of the stock market
The last year of data saw a striking exception to that phenomenon: The drop in CEO compensation from 2022 to 2023 was large compared with very little change in the stock market over that period. Realized CEO compensation (reported in Table 1) declined by 19.4% to $22.2 million from 2022 to 2023.4 The granted measure of CEO compensation, which values stock options granted in 2023 (not those exercised), also fell by 14.1%. While it is somewhat puzzling for CEO pay to fall as the stock market largely held steady, it's possible that the shift in stock-related pay away from options played a role, and this overall divergence will likely turn around with the stock market gains so far in 2024.
Table 1 also presents the longer-term trends in CEO compensation for selected years from 1965 to 2023.5 Our discussion of longer-term trends focuses mostly on the realized compensation measure of CEO compensation -- the measure preferred in most economic analyses. In general, CEO compensation follows the movement of the stock market but tends to exceed even the largest stock market gains.
As mentioned above, realized CEO compensation has, in general, risen and fallen along with the S&P 500 Index over the last five and a half decades. But the period from 1965 to 1978 is an exception: Although the stock market fell by roughly half between 1965 and 1978, realized CEO compensation increased by 79.9%.
To assess the role of CEO compensation in the overall increase in income and wage inequality of the last four decades, it is best to gauge growth since 1978.6 For the period from 1978 to 2023, realized CEO compensation increased 1,085% -- 77% faster than stock market growth (based on the growth of the S&P 500) and substantially faster than the 24% growth in the typical worker's compensation over the same period. CEO granted compensation grew 932% over this period.
Table 1 allows us to compare CEO compensation with that of a typical worker by showing the average annual compensation (wages and benefits of a full-time, full-year worker) of private-sector production/nonsupervisory workers (a group covering more than 80% of payroll employment; see Gould 2020) in column 5.
From 1992 onward, column 6 of the table also identifies the average annual compensation of production/nonsupervisory workers in the key industries of the firms included in the sample. We take this compensation as a proxy for typical workers' pay in these firms and use it to calculate the CEO-to-worker compensation ratio for each firm.
Columns 7 and 8 present trends in the ratio of CEO-to-worker compensation, using both measures of CEO compensation. We compute this ratio, which illustrates the increased divergence between CEO and worker pay over time, in two steps:
As Table 1 and Figure A show, using the realized measure of CEO compensation, CEOs of major U.S. companies earned 21 times as much as the typical worker in 1965. This ratio grew to 31-to-1 in 1978 and 61-to-1 by 1989. It surged in the 1990s, hitting 384-to-1 in 2000, at the end of the 1990s recovery and at the height of the stock market bubble.8
The fall in the stock market after 2000 reduced CEO stock-related pay, such as realized stock options, and caused CEO compensation to tumble in 2002 before beginning to rise again in 2003. Realized CEO compensation recovered to a level of 330 times worker pay by 2007, still below its 2000 level. The financial crisis of 2008 and accompanying stock market decline reduced CEO compensation between 2007 and 2009, and the CEO-to-worker compensation ratio fell in tandem.
Over the 2009-2021 period, another surge in realized CEO compensation brought the ratio to 405-to-1, a historic high. The ratio experienced significant declines between 2021 and 2023, as CEO pay fell. In 2023, the CEO-to-worker compensation ratio was 290-to-1. Even with the recent losses, the 2023 ratio is still far higher than it was in the 1960s, 1970s, 1980s, and the early 1990s.
The pattern using the granted measure of CEO compensation is similar. The CEO-to-worker pay ratio peaked in 2000 at 398-to-1, even higher than the 384-to-1 ratio using the realized compensation measure. By 2023, the granted compensation ratio decreased to 192-to-1. This level is far lower than its peak in 2000, but still much greater than the ratios in 1995 (131-to-1), 1989 (45-to-1), or 1965 (15-to-1).
The extraordinarily high level of the CEO-to-worker compensation ratio reflects the strikingly different trajectory of CEO pay compared with typical worker pay over the past 40 years. On the one hand, there has been little growth in the compensation of a typical worker since the late 1970s: It has grown just 24.0% over the 45 years from 1978 to 2023, despite a corresponding growth of net economywide productivity of 74.8% (EPI 2024). Meanwhile, the 1,085% growth in realized CEO compensation from 1978 to 2023 (excluding 1979, since there are no data for that year) exceeded the growth in productivity in that period.
Stock-related components of CEO compensation constitute a large and increasing share of total compensation. Realized stock awards and stock options made up 70.2% of total CEO compensation in 2006 ($15.1 million out of $21.5 million) and 76.6% of total compensation in 2023 ($17.0 million out of $22.2 million; not shown in chart). The growth of these stock-related components from 2006 to 2022 explains over 100% of the total growth in CEO realized compensation over this period.9 Of the stock-related components of compensation, stock awards make up a growing share, while the share of stock options in CEO compensation packages has decreased over time.
There is a simple logic behind companies' decisions to shift from stock options to stock awards in CEO compensation packages, as Clifford (2017) explains. With stock options, CEOs can only make gains: They realize a gain if their company's stock price rises beyond the price of the initial options granted, and they lose nothing if the stock price falls. Having nothing to lose -- but potentially a lot to gain -- might lead options-holding CEOs to take excessive risks to bump up their company's stock price to an unsustainable short-term high.
Stock awards, on the other hand, likely promote better long-term alignment of a CEO's goals with those of shareholders. A stock award has a value when granted or vested and can increase or decrease in value as the firm's stock price changes. If stock awards have a lengthy vesting period of three to five years, then the CEO has an interest in lifting the firm's stock price over that period while being mindful to avoid any implosion in the stock price -- to maintain the value of what they have. In some sense, the shift from options to awards might represent a small glimmer of hope that CEO labor markets are getting a bit less dysfunctional (though there is obviously a long way to go).
This section highlights how distorted CEO pay is, even compared with the most privileged workers in the U.S. economy -- the top 0.1%. CEO compensation has grown a great deal since 1965 and so has the pay of other high-wage earners.
To some analysts, this suggests that the dramatic rise in CEO compensation has been driven largely by the demand for the skills of CEOs and other highly paid professionals. In this interpretation, CEO compensation is being set by the market for "skills" or "talent," not by managerial power or the ability of CEOs to extract economic rents (income in excess of their contribution to actually producing it). The "market for talent" argument is based on the premise that it is other professionals, too, not just CEOs, who are seeing a generous rise in pay. The most prominent example of this argument comes from Kaplan (2012a, 2012b), who claims that a stable ratio of CEO-to-top 0.1% pay indicates that market power is not operating uniquely in CEO pay markets.
This lies in contrast to the explanation offered by Bebchuk and Fried (2004) and Clifford (2017) who claim that the long-term increase in CEO pay is a result of managerial power. Similarly, Bivens and Mishel (2013) argue that CEO pay gains are not the result of a competitive market for talent, but rather reflect the power of CEOs to extract concessions from corporate boards. A growing CEO-to-top-0.1% pay ratio would indicate that the scope for this unique exercise of market power in CEO labor markets is large.
To test the alternative theories, we compare CEO-to-top 0.1% pay ratios beginning in 1965, shown in Figure B. In 2022 (the last year available for the top 0.1% data series), this ratio was 9.4, meaning that CEOs made over 9 times as much in salary as even the most privileged 0.1% of workers in the economy. This 9.4 ratio in 2022 was 6.8 points higher than the historical average of 2.6 over the 1965-1978 period. This is a large change, meaning that the relative pay of CEOs increased by an amount equal to the total annual wages of nearly seven of these very high wage earners.10
CEO pay rising far faster than that of the top 0.1% suggests that market power is uniquely operating in CEO pay markets and rising pay is not a result of a competitive market for talent.
The extremely rapid growth of CEO compensation compared with the earnings of the top 0.1% of wage earners does not mean that the top 0.1% fared poorly. In fact, the very highest earners -- those in the top 0.1% of all earners -- saw their annual earnings (including realized stock options and vested stock awards) grow fantastically, though far less than the compensation of the CEOs of large firms (which are also a very small subset of the top 0.1%). Top 0.1% annual earnings grew a healthy 377.7% from 1978 to 2022, though that was just a small fraction of the 1,370.4% growth of realized CEO compensation achieved between 1978 and 2022 (strict comparability on the years 1979 to 2023 is not available because we do not have CEO data for 1979 nor top 0.1% data for 2023).
Since CEO pay growing far faster than the pay of other high earners is evidence of the presence of rents, one can conclude that today's top executives are collecting substantial rents, claiming income that greatly exceeds their contribution to producing it. This means that if CEOs were paid less, there would be no loss of productivity or output in the economy.
The large discrepancy between the pay of CEOs and other very-high-wage earners also casts doubt on the claim that CEOs are being paid these extraordinary amounts because of their special skills and the market for those skills. It is unlikely that the skills of CEOs of very large firms are so outsized and disconnected from the skills of other high earners that they propel CEOs past most of their cohort in the top one-tenth of 1%. For everyone else, the distribution of skills, as reflected in the overall wage distribution, tends to be much more continuous, so this discontinuity is evidence that factors beyond skills drive the compensation levels of CEOs.
There is normally a tight relationship between overall stock prices and CEO compensation. Some commentators draw on this regularity to claim that CEOs are being paid for their performance since, in the commentators' view, the goal of CEOs is to raise their companies' stock prices.
However, the stock-CEO compensation relationship does not necessarily imply that CEOs are enjoying high and rising pay because their individual productivity is increasing (for example, because they head larger firms, have adopted new technology, or for other reasons). CEO compensation often grows strongly when the overall stock market rises, and individual firms' stock values are swept up in this wake. This is a marketwide phenomenon, not one based on the improved performance of individual firms.
Most CEO pay packages allow pay to rise whenever the firm's stock value rises. In other words, CEOs can cash out stock options regardless of whether the rise in the firm's stock value was exceptional relative to comparable firms in the same industry. Similarly, vested stock awards increase in value when the firm's stock price rises in simple correspondence to a marketwide escalation of stock prices. If corporate taxes are reduced and profits rise accordingly, leading to higher stock prices, is it accurate to say that CEOs have made their firms perform better?
Some observers argue that exorbitant CEO compensation is merely a symbolic issue, with no real consequences for most workers. But on the contrary, the escalation of CEO compensation -- and of executive compensation more generally -- has likely helped fuel the wider growth of top 1% and top 0.1% incomes, contributing to widespread inequality.
Our data apply to the CEOs of the very largest firms. We presume that these CEOs set the pay standards followed by other executives -- of the largest publicly owned firms, of smaller publicly owned firms, of privately owned firms, and of major nonprofit firms (hospitals, universities, charities, etc.). If so, then CEO compensation is indeed a nontrivial driver of top incomes.
Another implication of rising pay for CEOs and other executives is that it reflects income that would otherwise have accrued to others instead of being concentrated at the highest level. What these executives earned was not available for broader-based wage growth for other workers (Bivens and Mishel 2013). It is useful, in this context, to note that wages for the bottom 90% would be 16% higher today had wage inequality not increased between 1979 and 2022.11
Most of the rise in inequality took the form of redistributing wages away from the bottom 90%. This group's share of total wage income fell from 69.8% in 1979 to 60.1% in 2022. Most of the loss experienced by the bottom 90% went to the top 1%, whose wage share grew substantially from 7.3% to 12.9% in these same years. And even among this gain going to the top 1%, most of it went to the top 0.1%, who saw their share of overall wage income nearly triple from 1.6% to 4.6% between 1979 and 2022. In other words, the bottom 90% lost 9.7% of total wage income between 1979 and 2022, and nearly 60% of this loss (5.6 of 9.7 percentage points) went to the top 1%, while 30% (or 3.0 of 9.7 percentage points) went to just the top 0.1%.
Several policy options could reverse the trend of excessive executive pay and broaden wage growth. Ideally, tax reforms would be paired with changes in corporate governance:
Baker, Bivens, and Schieder (2019) review policies that would restrain CEO compensation and explain how tax policy and corporate governance reform can work in tandem:
Tax policy that penalizes corporations for excess CEO-to-worker pay ratios can boost incentives for shareholders to restrain excess pay, [but] to boost the power of shareholders [to restrain pay], fundamental changes to corporate governance have to be made. One key example of such a fundamental change would be to provide worker representation on corporate boards.
Given the vital importance of changing shareholders' ability to restrain pay (not just their incentive to do so), another policy that could potentially limit executive pay growth is greater use of "say on pay," which allows a firm's shareholders to vote on top executives' compensation.
The CEOs examined in this report head large firms. These firms, almost by definition, enjoy a degree of market power that some studies suggest has grown in recent decades. It seems that CEOs and other executives may have been prime beneficiaries of these firms' greater market power. Using the tools of antitrust enforcement and regulation would help to restrain these firms' market power. This would not only promote economic efficiency and competition but might help restrain executive pay as well.
1. For the pay of the typical worker, we use average compensation (wages and salaries plus benefits) of a full-time, full-year production or nonsupervisory worker (a group that makes up about 80% of the private-sector workforce).
2. In earlier reports, our sample for each year was sometimes fewer than 350 firms because some of these large firms did not have the same CEO for the entire (or most of the) year or the compensation data were not yet available. We now examine the top 350 firms with the largest revenues each year for which there are data to not let changes in sample size affect annual trends.
3. Authors' analysis of the Compustat ExecuComp data.
4. Note that while we report executive compensation in millions in the text, and we round numbers to the nearest thousand in Table 1, dollar and percent changes are calculated using unrounded data.
5. We choose which years to present in the table based in part on data availability. Where possible, we choose cyclical peaks (years of low unemployment). It may be useful to note that our data here do not match earlier versions of this research (for example, see Table 1 in Bivens and Kandra 2023). While there are many reasons the data vary from year to year -- primarily changes in the list of top 350 public firms by sales -- another difference is that we are now using a chained Consumer Price Index to measure inflation because it better captures consumers' ability to substitute away from goods and services with relatively faster price growth.
6. A better comparison would be to the low-unemployment year of 1979, but those data are not available.
7. There are a limited number of firms, which existed only for certain years between 1992 and 1996, for which a North American Industry Classification System (NAICS) value is unassigned. This makes it impossible to identify the pay of the workers in the firm's key industry. These firms are therefore not included in the calculation of the CEO-to-worker compensation ratio.
8. As noted earlier, it may seem counterintuitive that the two ratios for 2000 are different from each other when the average CEO compensation is the same. It is important to understand that (as described later in this report) we do not create the ratio from the averages; rather we construct a ratio for each firm and then average the ratios across firms.
9. The managerial power view asserts that CEOs have excessive, noncompetitive influence over the compensation packages they receive. Rent-seeking behavior is the practice of manipulating systems to obtain more than one's fair share of wealth -- that is, finding ways to increase one's own gains without actually increasing the productive value one contributes to an organization or the economy.
10. A one-point rise in the ratio is the equivalent of the average CEO earning an additional amount equal to that of the average earnings of someone in the top 0.1%.
11. This follows from the fact that from 1979 to 2022, annual earnings for the bottom 90% rose by 32.9%, while the average growth across all earners was 54.3% (Gould and Kandra 2023).
The authors thank the Stephen M. Silberstein Foundation for its generous support of this research. Steven Balsam has provided useful advice on data construction and interpretation over the years. He is an accounting professor at Temple University and author of Executive Compensation: An Introduction to Practice and Theory (2007) and Equity Compensation: Motivations and Implications (2013). Steven Clifford, author of The CEO Pay Machine: How It Trashes America and How to Stop It (2017), has also provided technical advice. Clifford served as CEO for King Broadcasting Company from 1987 to 1992 and National Mobile Television from 1992 to 2000 and has been a director of 13 public and private companies. The authors also wish to acknowledge Larry Mishel, former EPI president and economist, who was valuable in setting the foundation for EPI's work on CEO pay.
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Mishel, Lawrence and Jori Kandra. 2020. CEO Compensation Surged 14% in 2019 to $21.3 Million: CEOs Now Earn 320 Times as Much as a Typical Worker. Economic Policy Institute, August 2020.
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Securities and Exchange Commission (SEC). 2015. "SEC Adopts Rule for Pay Ratio Disclosure: Rule Implements Dodd-Frank Mandate While Providing Companies with Flexibility to Calculate Pay Ratio" (press release). August 5, 2015.