New Legislation Is Taking Aim at the Corporate Pay Gap
The corporate pay gap is rapidly widening. A proposed law would raise taxes on companies whose CEOs make 50 times more than the median pay of their employees.
The Meta store in Burlingame, California, on February 2, 2023. (David Paul Morris / Bloomberg via Getty Images)
CEO pay at many of America’s largest companies is skyrocketing while those executives slash the median pay for their workers, according to new government filings. The revelation comes as congressional lawmakers consider new legislation that would raise corporate taxes on companies with a wide CEO-to-worker pay gap.
A new report from the corporate research firm Equilar found that last year, executive compensation packages at some of the country’s largest companies increased by just over 11 percent.
During the same period, employee pay declined by 9 percent. The median 2023 pay at these top-performing companies was $64,304 — the lowest it’s been since at least 2019.
In all, researchers found that in 2023, CEOs of the companies analyzed made 251 times the median pay of their employees — a 34.6 percent increase since 2019.
“This increase in the CEO Pay Ratio is significant as it marks a growing disparity between the compensation of top executives and that of the average employees within the company,” wrote the report’s authors. “While CEOs are awarded lucrative compensation packages and bonuses tied to performance metrics, employees, especially those at the lower end of the pay scale, may experience stagnant wages, reduced benefits or limited opportunities for advancement.”
The new report is based on publicly traded corporations’ annual filings with the US Securities and Exchange Commission (SEC).
Researchers analyzed the first segment of 2024 proxy statements submitted by the country’s top five hundred most successful firms in terms of revenue to get an early look at 2023 pay trends. They found that the companies’ average CEO salaries reached $15.7 million in 2023 — an 11.3 percent increase from 2022.
Tax Plan Takes Aim at Pay Gap
The data emerges three months after US senator Bernie Sanders (I-VT) reintroduced legislation to base corporate tax rates on the ratio between CEO and median worker pay.
In practice, the legislation would raise taxes on companies whose top executives are paid at least fifty times more than the average worker and impose higher penalties for companies where a CEO makes five hundred times more than the median employee. The measure would generate an estimated $150 billion in annual federal income over ten years.
“At a time of massive income and wealth inequality, the American people are demanding that large, profitable corporations pay their fair share of taxes and treat their employees with the dignity and respect they deserve,” Sanders wrote in a release.
A version of this tax exists in Portland, Oregon. San Francisco voters also passed a CEO tax in 2020, which has since generated $137 million for the city.
“We know in general that Americans tend to favor higher taxes on the rich,” wrote Gallup’s senior scientist Frank Newport when Sanders first proposed the tax legislation during his 2020 presidential campaign. “This suggests a generally fertile public opinion environment for acceptance of the type of plan Sanders is proposing: to stick higher taxes on companies whose CEOs make a lot of money relative to the average pay of their employees. . . . I think it’s likely there is majority support for Sanders’ proposal.”
In 2022, a nationwide survey found that 75 percent of Democrats and 62 percent of Republicans support capping CEO pay relative to worker pay, up from 66 percent of Democrats and 52 percent of Republicans in 2016.
Data Comes From Contested Federal Rule
Researchers obtained the new corporate pay data thanks to a 2017 rule implemented by the SEC that required public companies to disclose the ratio of their CEO compensation to their employees’ median pay. Industry groups and Republican lawmakers fought the rule.
At the time, SEC commissioner Luis Aguilar wrote that the rule “will better equip shareholders to promote accountability for the executive compensation practices of the companies that they own.”
But since the regulation was adopted, it has done little to rein in CEO pay or raise employee wages. Researchers at the University of Buffalo found that the average CEO’s total earnings did not change in the years since the 2017 reporting rule, finding instead that “companies merely adjusted their CEO compensation mix to limit components — like stock awards and noncash perks — that could generate negative headlines.”
Executive pay has been on a marked upswing since the COVID-19 pandemic. Authors of the new Equilar report noted company boards may be rewarding their executives for “their leadership and performance during these trying circumstances” — even as between nine million and forty-one million Americans lost their jobs.
As of last year, 60 percent of American workers were living paycheck to paycheck.
The growth in executive compensation has been mirrored by massive increases in stock buybacks. Some research suggests that the emphasis on stock options in executive compensation packages has pushed CEOs to value company stock prices over other considerations like product innovation or employee compensation.
These findings coincide with a past report by Equilar, which found that corporations were significantly expanding personal perks for their executives, including increasing their use of company jets, security services, and cars and drivers. In 2022, the median value of these perks hit $130 million for CEOs and $23 million for chief financial officers.
At the top of the list of corporate jet users, Meta CEO Mark Zuckerberg enjoyed $2.3 million in 2022 private jet flights, while Lockheed Martin CEO James Taiclet logged $1.3 million in corporate airfare.