Why Are CEOs Getting Paid Over 300 Times What Their Workers Make?

In America it is far from uncommon for a CEO of a corporation to earn hundreds of times more than their median-salaried workers do. It is understandable for the head of a corporation to bring home a good paycheck. After all, the primary goal of private enterprise is to turn a profit.

However, at a time when wages have stagnated for workers, and when a large percentage for some of the most profitable corporations such as Amazon and Walmart must depend on public assistance to make ends meet, the failure to rein in CEO salaries amounts to nothing less than modern feudalism.

Given the complexity of the U.S. tax code, which skews heavily in favor of corporations that often pay $0 in federal income tax, failing to address CEO pay and rising income inequality results in an unjust redistribution of wealth from the struggling middle class to the wealthy. Not only does this leave hardworking families struggling, it sets the stage for economic collapse as the largest group of consumers lose their purchasing power, driving down demand.

workers in firms where the gulf between CEO pay and average worker pay is widest tend to be less productive

Just how disparate is the gap between CEO pay as compared with the pay of average workers? One study by the AFL-CIO reveals this shocking statistic: The average CEO in America earns a whopping 335 times what the average worker at their company does.

The statistics are even more staggering when CEO pay stacks up against the minimum wage. For example, one need only look at Yum! Brands, which controls fast food chains such as Taco Bell and KFC. Taco Bell CEO Greg Creed's salary was 1,358 times greater than the company median pay of $9,111 for the year. Not only do most fast-food workers earn only minimum wage, or just above, many of them work part-time schedules and are subject to frequent shift changes, which may lead to fewer hours and a smaller paycheck.

Part of the reason CEO compensation continues to soar is that CEO salary packages are often linked to performance in the stock market. As markets have gone up, so has CEO pay. However, CEO salary packages have risen at a far quicker rate than has overall company performance.

Not surprisingly, workers in firms where the gulf between CEO pay and average worker pay is widest tend to be less productive. This gap in productivity does not reflect poor motivation on the part of employees, but instead is indicative of the sense of futility that comes from working one's hardest without any correlating increase in salary.

Ironically enough, this vast disparity between CEO pay and average worker income negatively impacts the company's overall bottom line. In companies with a larger difference between CEO and worker pay, frequent employee turnover leads to the company spending additional money in training new talent, an expensive endeavor. In addition, firms with the greatest income disparity also suffered lower overall sales and a rise in employee dissatisfaction.

underpaying workers while continuing to raise CEO pay is bad for the individual business, and bad for the economy as a whole

When employees no longer feel fairly compensated for their labor, company morale is certain to flag. As pay disparities are increasingly being disclosed, and with the disparity between CEO and worker pay creating an unstable middle class, it is clear underpaying workers while continuing to raise CEO pay is bad for the individual business, and bad for the economy as a whole. Most consumers don't have the income they need to buy goods and services to help promote growth.

Ways to address the disparity between worker and CEO pay involve both the private and public sectors. Obviously, revising the United States' tax policy to increase taxes on the highest earners would act as a disincentive to huge salary packages. Likewise, once more raising the corporate tax rate would require profitable corporations to pay their fair share and provide much-needed revenue for the United States to reinvest in its infrastructure and create more jobs in the process.

Solutions from the private sector remain largely in the hands of corporate shareholders, as CEOs, obviously, have little incentive to bring salary reform themselves. Encouraging shareholders to have more of a say in what the CEOs of the corporations they invest in get paid can also help rein in high CEO pay.

Regardless of whether change comes from the private sector, the public sector or most likely a combination of both, the fact that change is necessary is apparent. Companies cannot profit without effort from their entire organization, not just the actions of their CEOs. When companies invest in workers as well as leaders, society as a whole benefits from a thriving middle class and happy, productive citizens who reinvest in their local economy. Reining in CEO pay is truly a win for all.

More about the author

About the author

Born in Williamsport, Pennsylvania, Kate Harveston is a recent college graduate and an aspiring journalist. She enjoys writing about social change and human rights issues, but she has written on a wide variety of other topics as well.

She blogs on social and cultural issues at  Only Slightly Biased.

Follow Kate on Twitter.

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