The CEO Got a Huge Raise Last Year. You Didn't. Here's Why.

top 10 highest paid CEOs of 2013
APThe 10 highest-paid CEOs of 2013: Top row, from left: Anthony Petrello, Nabors Industries, $68.2 million; Leslie Moonves, CBS, $65.6 million; Richard Adkerson, Freeport-McMoRan Copper & Gold, $55.3 million; Stephen Kaufer, TripAdvisor, $39 million; and Philippe Dauman, Viacom, $37.2 million. Bottom row, from left: Leonard Schleifer, Regeneron Pharmaceuticals, $36.3 million; Robert Iger, Walt Disney, $34.3 million; David Zaslav, Discovery Communications, $33.3 million; Jeffrey Bewkes, Time Warner, $32.5 million; and Brian Roberts, Comcast, $31.4 million.
By JOSH BOAK

WASHINGTON -- Pay for globe-trotting CEOs has soared to new heights, even as most workers remain grounded by paychecks that are barely budging.

While pay for the typical CEO of a company in the Standard & Poor's 500 stock index surged 8.8 percent last year to $10.5 million, it rose a scant 1.3 percent for U.S. workers as a whole. That CEO now earns 257 times the national average, up from a multiple of 181 in 2009, according to an analysis by The Associated Press and Equilar.

Those figures help reveal a widening gap between the ultra-wealthy and ordinary workers around the world. That gap has fed concerns about economic security -- everywhere from large cities where rents are high to small towns where jobs are scarce.

Here are five reasons why CEOs are enjoying lavish pay increases and five reasons many people are stuck with stagnant incomes.

Why CEOs Are Getting Huge Raises


1. They're paid heavily in stock.

Unlike most workers, chief executives receive much of their compensation in the form of company stock -- a lot of it. The theory behind compensating CEOs this way is that it aligns the interests of senior management with those of shareholders, which would seem beneficial for a company.

Yet accounting scandals of the early 2000s showed that some executives gamed the system, ultimately at shareholder expense. Executives at firms such as Tyco (TYC) and Enron tinkered with the books to boost corporate incomes, share prices and the fortunes of insiders and senior managers.

Still, the bonanza continues. The average value of stock awarded to CEOs surged 17 percent last year to $4.5 million, the largest increase ever recorded by the AP. Remember, too: Long-term gains on stocks are taxed at lower rates than ordinary pay is.

The S&P 500 jumped 30 percent last year, compounding the size of the CEOs' paydays. Consider Leslie Moonves of CBS, whose stock climbed at twice the rate of the overall stock market. Moonves collected $65.6 million.

The stock rally has been fueled in part by historically low interest rates engineered by the Federal Reserve. Those rates led many investors to shift money out of low-yielding bonds and into stocks.

2. Peer pressure.

Robert Solow, a Nobel Prize-winning economist, recently observed that CEOs live in "Lake Wobegon," that fabled town created by radio show host Garrison Keillor where, it is said, "all the children are above average." Solow didn't mean it as a compliment.

Corporate boards often set CEO pay based on what the leaders of other companies make. No board wants an "average" CEO. So boards tend to want to pay their own CEO more than rival CEOs who are chosen for benchmarking compensation packages.

This will "naturally create an upward bias" in pay, Charles Elson and Craig Ferrere of the University of Delaware concluded in a 2012 paper. "[T]he compounded effect has been to create a significant disparity between the pay of executives and what is appropriate to the companies they run."

3. The superstar effect.

Companies often portray their CEOs as the business equivalents of LeBron James or Peyton Manning -- athletes who command (and deserve) enormous pay for their performance and ability to draw crowds.

The era of digital communication and private jets has given leading athletes, entertainers and business people the global reach to generate outsized profits. The late University of Chicago economist Sherwin Rosen theorized that this phenomenon would concentrate more income with the top players. As corporate giants compete around the world, the drive to procure corporate superstars has helped inflate CEO pay.

4. Friendly boards of directors.

Some board members defer to a CEO's judgment on what his or her own compensation should be. There's a good reason: Many boards are composed of current and former CEOs at other companies. And in some cases, board members are essentially hand-picked or at least vetted by the CEO. Not surprisingly, the boards' compensation committees offer generous bonuses.

5. Stricter scrutiny.

Even companies with vigilant boards and an emphasis on objectively assessing CEO performance might shower their chief executives with money. When a CEO faces more scrutiny and a greater chance of dismissal, the companies often raise pay to compensate for the risk of job loss, according to a 2005 article by Benjamin Hermalin, a professor at the University of California, Berkeley.

Why Many of Us Aren't Getting a Raise


1. Blame the robots.

Millions of factory workers have lost their spots on assembly lines to machines. Offices need fewer secretaries and bookkeepers in the digital era.

Robots and computers are displacing jobs that involve routine tasks, according to research by David Autor, an economist at Massachusetts Institute of Technology. As these middle-income positions vanish, workers are struggling to find new occupations that pay as much. Some must settle for low-paying retail and food service jobs.

College tends to substantially improve people's earnings power compared with workers who have completed only high school. But even workers who have attended college have been hurt by the loss of middle-income jobs.

Nearly 45 percent of U.S. workers who earned less than $10.10 an hour last year had either attended college or had graduated, according to an analysis by John Schmitt, a senior economist at the liberal Center for Economic and Policy Research.

2. High unemployment.

The aftermath of the Great Recession left a glut of available workers. Businesses face less pressure to give meaningful raises when a ready supply of job seekers is available. They're less fearful that their best employees will defect to another employer.

The current 6.3 percent unemployment rate, down from 10 percent in October 2009, isn't so low that employers will spend more to hire and keep workers. Wages grew in the late 1990s when unemployment dipped to 4 percent, a level that made high-quality workers scarce and compelled businesses to raise pay.

3. Globalization.

Companies can cap wages by offshoring jobs to poorer countries, where workers on average earn less than the poorest Americans. Consider China. A typical Chinese factory employee made $1.74 an hour in 2009, according to the Bureau of Labor Statistics -- roughly a tenth of what their U.S. counterpart made.

Some analysts say this decades-long trend may have peaked. But many economists say the need for the United States to compete with a vast supply of cheap labor worldwide continues to exert a depressive effect on U.S. workers' pay.

4. Weaker unions.

Organized labor no longer commands the heft it once did. More than 20 percent of U.S. workers were unionized in 1983, compared with 11.3 percent last year, according to the Bureau of Labor Statistics. That has drastically reduced the unions' sphere of influence. Result: Fewer workers can collectively negotiate for raises.

5. Low inflation.

For the past five years, the government's standard inflation gauge, the consumer price index, has averaged an ultra-low 1.6 percent. When inflation is high, employees tend to factor it into requested pay raises. But when inflation is as low as it has been, it almost disappears as a factor in pay negotiations. Workers typically settle for less than if inflation were higher.


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16 Comments

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Tom Wilson

*****

May 29 2014 at 2:59 PM Report abuse rate up rate down Reply
Tom Wilson

*****

May 29 2014 at 2:59 PM Report abuse rate up rate down Reply
rcohn95038

Guess, aAP doesn't know much about the unemployment situation in this country, as it doesn't mention a single thing about the people who have simply given up looking for work, thanks to the self-proclaimed "most transparent Administration in history".

May 29 2014 at 10:33 AM Report abuse -1 rate up rate down Reply
teaparty2implode

The Psychopathy of Corporate Functionality

The Corporate Psychopaths dominate the Anthill!
So what Do They Have in Common Exactly?

Its simple:

Callous disregard for the feelings of others.

Incapacity to maintain enduring relationships.

Reckless disregard for the safety of others.

Deceitfulness: repeated lying and deceiving others for profit.

Incapacity to experience guilt or empathy.

Failure to conform to social norms, especially with respect to lawful behaviors.
Common traits of Psychopathic Behavior:

More traits of the Psychopath (including the Corporate Psychopath) include:


Lack of remorse for evils done to others

Indifference to the suffering of its victims

Rationalizes their actions

Willingness to exploit, seduce or manipulate others

No sign of delusional or irrational thinking.

Cunning, clever

Commonly above average intelligence,

Always looking for ways to make money or achieve fame or notoriety

Willing to cause or contribute to the financial ruin of others

Cannot be trusted to adhere to conventional standards of morality.

Mr Burns...

To put into into another pop culture reference:

Mr Burns owns the only nuclear power plant in Springfield. He is an extremely wealthy old man (his net worth being $1,800,037,022 as stated in the episode 'The Burns and the Bees') with immense power, mainly due to his wealth. While he has more money than all the Simpsons characters put together, he still cuts corners in the power plant in order to save money. He is both immensely greedy and stingy simultaneously. He cares neither about the power he is supplying, or the people he is supplying it to. He hires incompetent employees (sorry Homer). his family life is suspicious in that he apparently had 9 siblings all due to be heirs to his families fortune, but all of which died under suspicious circumstances, leaving him the only heir to the Burns fortune.


Burns himself personifies Corporate America, with an unquenchable desire to increase his own wealth and power. He has no care for any of his workers, portrayed in the fact that he never remembers their names and is also wholly unconcerned for their safety and well-being as the power plant has obvious and serious safety violations that are never dealt with. He trusts nobody, and constantly keeps watch over his employees, spending most of the day in his giant office doing just that.

He has also appeared as quite fragile at points too, which is suggestive of old age, but what if he puts it on to make people think he's losing his mind? By making himself appear more human with forgetfulness and moments of fragility it makes people think he is simply an old man, with no actual power. However, he uses this against people in order to gain as much control and money as possible.

He is greedy, egotistical and dreams only of more power, and success, while also hoping for the failure of rival companies. He is, like most corporations, the most dangerous of all psychopaths.

May 29 2014 at 9:18 AM Report abuse +2 rate up rate down Reply
jashold

The only reasons the workers aren't getting more is because it's all being given to the greedy CEOs who are worthless and don't do any real work.
As for inflation being 1.6% - if you believe that garbage I got a bunch of bridges to sell you. My rent went up in the last year from 675 to 775 that's almost 15%. Health insurance went up almost 3%. Electricity went up 5%. Groceries went up at least 11%. So, this 1.6% is a bunch of hooey.

May 28 2014 at 4:35 PM Report abuse +3 rate up rate down Reply
jim.lapt

My hubby is going to be a CEO one day, he's a pilot, he make 6 figures now and is getting our new A6 soon. We fly all over the world and rub elbows with rich and famous people. We love our president Obama, he's such a great leader. The evil republicans don't like him.

May 28 2014 at 1:41 PM Report abuse -2 rate up rate down Reply
petpetdon

Once a person has the title of CEO on their resume they can go to any other company and screw it up and still make MILLIONS. It is the Old Boys Club.

May 28 2014 at 12:38 PM Report abuse +3 rate up rate down Reply
sasha

This country was founded by those wanting to escape the wealth and power that royalty created. It is interesting that this same royal system is developing, all with the tacit approval of the very people it is hurting. Workers have been told to hate unions; health care for all is "socialist"; people on welfare are the worst of scum.....on and on. And just where do these messages come from? Bought and paid for by the wealthy. Best to keep the proles in a state of anger.

May 28 2014 at 12:20 PM Report abuse +3 rate up rate down Reply
chuckhalper

AOL/HP stirring the class hatred thing agin, 5 or 6 articles in the last three days on how much some CEOs get paid.

May 28 2014 at 11:57 AM Report abuse -3 rate up rate down Reply
Tom Harrell

so, after you get a Computer Analysis of what they just said and have an Accountant and a lawyer explain it in terms the average Worker can understand, it all comes down to-----------They've got Theirs by manipulating the Stocks instead of WORKING for it and the Rest of us who WORK for it Don't get ANYTHING but the CAKE.

May 28 2014 at 11:56 AM Report abuse +5 rate up rate down Reply
1 reply to Tom Harrell's comment
theycallmeroy3

Just make sure you exercise and eat right if you continue to feel this way, because there's evidence that negative thinking will erode your health faster than eating cake.

May 28 2014 at 12:11 PM Report abuse -3 rate up rate down Reply
2 replies to theycallmeroy3's comment
hsenpfeffer

But the stuff you swallow under your many screen names is even worse for your health.

May 28 2014 at 2:50 PM Report abuse +1 rate up rate down
hsenpfeffer

The disgusting things spewed out of your mouth little koch monkey are disturbing and sickening.

May 28 2014 at 5:34 PM Report abuse +2 rate up rate down