Does the average Chief Executive Officer earn 300 times the average American? News media outlets have reported and repeated this finding for over a decade, with the multiple ranging from 297 to 354 times the average American worker (some also report that the ratio was even higher before the recession in 2000). This data point has been repeated by political pundits, politicians, pontificators, and provocateurs in an endless series of reports, memes, and position statements, often conflating “CEO” with all executives.
The reality, however, is very different. And while many confuse “all executives” with “Chief Executives,” this error is fairly minor compared to the reality: American CEOs don’t earn 300 times the average American worker. The true average is many times less than that, even after eliminating the CEOs of non-profit foundations, public trusts, and government entities. Those expounding upon this talking point, if they are not simply incompetent, are purposefully lying to the public to push an agenda.
The actual “analysis” of CEO pay is usually derived in this manner:
- An organization such as a university social sciences department, a labor union or political think tank decides that workers aren’t paid enough, and they need a talking point that will illustrate it.
- The organization decides to evaluate executive compensation and selects a research associate to find out.
- The “researcher” analyzes CEOs since they are likely to be the highest-paid executives at any given company.
- The researcher chooses a set of companies from the Fortune 100, Fortune 500, S&P 500, or a similar index of the largest public companies in the United States.
- The researcher averages the salaries, bonuses, benefits, and every other form of compensation received by these CEOs.
- The organization compares these to the average of income of all workers, including part-time, seasonal, and temporary, in the same year in the United States.
- The organization publishes a scathing report about “executive compensation”in the United States.
- The report is endlessly repeated by the media, left-wing politicians, and Social Justice Warriors on radio, television, news sites, and in social media, often with an appeal to class envy.
This is ridiculous. First, the analysis is not about “corporate executives,” but specifically about Chief Executive Officers, who are most likely to be the highest paid individual at any company (they aren’t always, but it’s a general rule). Second, it’s not an “average” of CEO pay, but an average of every dollar of compensation for CEOs from the largest companies in the United States, which by natural extension means a majority of the largest companies on Earth. Most of the reports and news articles even admit it, though with a cast-away line about “the largest firms” or similar vague reference. The most open about it is usually the independent think tank, such as this one from the Economic Policy Institute:
Average CEO compensation for the largest firms was $16.3 million in 2014. This estimate uses a comprehensive measure of CEO pay that covers chief executives of the top 350 U.S. firms and includes the value of stock options exercised in a given year. Compensation is up 3.9 percent since 2013 and 54.3 percent since the recovery began in 2009.
If a reporter or researcher is feeling excessively honest that day, they also reveal that much of CEO compensation is performance-based: That is, that if the company performs well, the CEO is paid more than if the company performs badly. Rarely, they might also note that these performance-based compensation packages arose due to Clinton-era cronyism and progressive policy. Usually this detail is left out of any reporting outside of lengthy print articles, and then usually left to the end when most readers have already lost interest.
That these analyses are taken seriously and repeated in the terms their authors desire is an indictment of both the bias of the majority of the media outlets and reporters and the relatively poor manner in which Americans have been educated in the areas of statistics and economics. Most Americans don’t understand the concepts of “convenience sample” and “researcher bias.” Most Americans can’t explain the concept of Supply and Demand, nor effectively explain scarcity. Of course, this is by design.
The reality is that Chief Executives‘ salaries, even at the largest firms, aren’t nearly as large as their full, performance-based compensation packages; and that the “average” CEO, even the average corporate CEO, earns far less than “300 times” the average American worker. Unfortunately, political think tanks and media outlets aren’t interested in actual research. Actual research might mean their precious talking points would be disproved, and that their political agenda could be thwarted by reality.