The absurd salaries of CEOs in the United States
30 October 2023
How much money should the Chief Executive Officer (CEO) of a company make?
Historically, CEOs were paid 20-25 times the average salary of their employees. Thus, if the average salary was $50,000, the CEO would make $1.0 to $1.3 million. This, to me, seems adequate.
Starting in the late 1970s, CEO pay increased astronomically and now averages over 300 times the typical worker's salary.
This exorbitant CEO pay increase has far outpaced typical workers' pay and is a problem that should be fixed:
It pulls up the pay of other top corporate earners and contributes to rising inequality, which is not only unfair but creates an unstable society.
These high earnings at the top of companies leave less money to increase the pay of ordinary workers.
This high pay may hurt CEO performance by causing them to obsess about their pay and not focus enough on their responsibilities to the company and its employees.
In 2022, the CEO-employee pay ratio for the Big Three automakers was:
General Motors
CEO Mary Barra: $29 million
Median worker: $80,034
CEO-worker pay ratio: 362-to-1
Ford
CEO Jim Farley: $21 million
Median worker: $74,691
CEO-worker pay ratio: 281-to-1
Stellantis
CEO Carlos Tavares: $24.8 million
Average worker: $67,789
CEO-worker pay ratio: 365-to-1
Source: U.S. Securities and Exchange Commission filings
The CEO-employee pay ratios for many US companies in 2022 are listed here.
What can be done about this exorbitant CEO pay?
Reinstate higher income tax rates for very high salaries.
Use tax policy to incentivize lower CEO pay. For example, do not allow corporate deductions for executive pay greater than 25 times the average employee pay.
Allow shareholders to vote on CEO compensation.
Use antitrust enforcement and regulation to rein in the market power of the largest firms.
As consumers, we can steer our business, when possible, towards businesses that do not pay their CEOs exorbitant amounts or at least avoid the worst offenders.
For the past 40 years, I have owned many small businesses and have concluded that it makes sense to pay myself only a reasonable salary - not to maximize it for myself. In addition, although it is important to make a good profit, that is not the only important goal. We should also give employees a good wage and benefits package and make charitable giving to the community a major part of our business.
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