Jessica Schieder is a Research Assistant at the Economic Policy Institute and Dean Baker is Senior Economist at the Center for Economic and Policy Research. This post is based on a publication from the Economic Policy Institute and Center for Economic and Policy Research authored by Ms. Schieder and Mr. Baker.
The ratio of CEO pay to that of ordinary workers has exploded over the last four decades, going from less than 30-to-1 in the 1970s to more than 200-to-1 by 2000 and in most subsequent years (Mishel and Schieder 2017). There is an ongoing debate about the causes of this increase in CEO compensation. Many economists have argued that this increase in CEO pay is justified by the returns to shareholders produced by successful CEOs (Mankiw 2013; Kaplan 2012a; Kaplan 2012b; Hubbard and Palia 1995). On the other side, critics of increased CEO pay see it as a breakdown in the corporate governance structure that allows CEOs and other top executives to enrich themselves at the expense of shareholders (Bivens and Mishel 2013; Bebchuk and Fried 2004; Bertrand and Mullainathan 2001). These critics point to compensation packages that allow CEOs to profit from events beyond their control, such as a general rise in the stock market or an increase in world oil prices driving up profits and stock prices for oil companies.