The Wage Disparity That Exists Between Executives And Employees And The Adverse Implications On The Economy

Executive Compensation. I’m in agreement with Thomas Piketty that the one cause of rising inequality in the United States “the rise of supersalaries” for top executives (Piketty & Goldhammer, 2014, p. 298). The average American estimates CEO to worker pay ratio at about 30-to-1, which is more than 4 times what they believe to be ideal. The career review site Glassdoor reported from 2014 data that the average pay ratio of CEO to median worker was 204-to-1 and that at the top of the list, four CEOs earn more than 1,000 times the salary of their median worker with the very top pay ratio of 1,951-to-1. In some cases a CEO makes in one-hour what it takes the average employee six-months to earn. In comparison, the Washington Post reported for the

Thesis: The gender pay gap in the United States is an understated misconception to many men and women today. This paper will overview the reality, causes, statistics, and those being affected by gender pay gap, as well as what this issue means for the future of the United States of America.

According to a news report written by Catherine Ruetschlin, explains everything needed to know about the economy and the CEO-to-worker pay with the failure it holds. “The report, by the public policy group Demos, concludes the fast-food industry has the most extreme pay disparity of all the sectors in the U.S. economy, with a CEO-to-worker pay ratio now exceeding 1,000 to 1. By comparison, the ratio in the retail sector is about 304 to 1, meaning the CEOs in this sector make about 304 times the income of the average worker. And construction company CEOs make about 93 times that of the average worker.” These companies with extreme pay disparity won’t be losing any money if they raise their minimum wage to $9. The comparison of how much a CEO makes to an average worker is ridiculously large, and the fact that some of these CEO’s are complaining about paying their worker an extra two dollars an hour for their efforts and labor is

See, Bob Reich isn't the just a single to notice disparity. Indeed, even most corporate chiefs are worried that soaring CEO compensations are askew with corporate benefit, and also normal worker wage. As working mom Nancy Rasmussen says, it just doesn't seem right. "I took a pay cut of $12 an hour. My benefits have gone down," Rasmussen says. Her voice cracking with emotion, she asks, "If you have millions of dollars, why do you need that little bit that I have?" We see it all around us: A CEO gets a huge bonus the same year he lays off hundreds of

In-depth research on inequality highlights the problematic reality that the average American employee has not seen increases in wage benefits from the U.S.'s productivity gains much like top income earners have. Rising inequality in the United States has been noted as the growing divergence between growing productivity and the flattening of average wages since the late 1970s (Citation). The average worker's compensation only grew by 8% from 1979 to 2009 despite an 80% increase in productivity (Sylla). Meanwhile, wages for top percent of income earners have been growing at a disproportionally higher rate than productivity. C.E.O.s from big companies went from earning about twenty times more than their average employee in 1965, to earning about

However, there have been many cases where the CEO and executive officers receive outrageous compensation even when the companies suffer. Overall, there is a wide disconnect between the incentive of the executives and the financial performance of their company, which needs to be fixed. By passing regulations and rules such as the Dodd-Frank Act, there is hope of shedding light on the connection between the company’s performance and the executives pay. Although it will provide a clear insight, it will not be able to set a strict regulated compensation or define what an executive should earn. Instead regulations will allow for more transparency for the shareholders regarding corporate governance issues such as executive pay. Along with that, it will force companies to take accountability for their actions. If they do poorly, then the executives should be paid less, and vice versa. Overall, there should be a direct alignment between executive pay and the company’s

Many proponents of capitalism argue that the wealth is shared with the workers. But is it true? According to an annual report in 2008, an average American CEO makes as much money in one day compared to what an average worker earns in one year1. And the disparity between business leaders and average workers continues to grow over time. From 1990 to 2005, the CEO’s salaries increased almost 300%, while a worker received a scant 4.3%2. The social consequence of this disparity is the concentration of wealth on a small percentage of population.

Most people would agree that income should be based on education and experience. However, this formula applies to minimum wage workers as well as to the CEO of a large corporation. It is true that the roles of most every individual in society are important. People are needed to work minimum wage level jobs just as much as stockbrokers. In today’s fast paced society, however, there is a higher demand for people who have learned a specific trade or skill. CEO’s make more money than fast food workers do because there is a more limited supply of people who are capable of running multi-million dollar corporations. Both work equally as hard but one has a higher-level of skill. This skill is more valuable to society so the income is higher.

The term 'executive pay' has acquired bad connotations over the past decade or so and the recent Occupy Wall Street movement brought this issue back into public consciousness on a worldwide scale (Minder, 2013). In Switzerland, the parliament recently passed legislation that would limit executive compensation excesses under threat of fines and imprisonment and the European Parliament agreed to limit banker bonuses to twice their base salaries. Adding fuel to this fire was last month's announcement that the golden parachute for departing Novartis Chairman Daniel Vasella would include a $78 million dollar severance payment.

Directors have awarded compensation packages that go well beyond what is required to attract and hold on to executives and have rewarded even poorly performing executives. These executive pay excesses come at the expense of shareholders as well as the company and its employees. Furthermore, a poorly designed executive compensation package can reward decisions that are not in the long-term interests of a company. Excessive CEO pay is essentially a corporate governance problem. When CEOs have too much power in the boardroom, they are able to extract what economists' call "economic rents" from shareholders (Economic rent is distinct from economic profit, which is the difference between a firm's revenues and the opportunity cost of its inputs). The board of directors is supposed to protect shareholder interests and minimize these costs. At approximately two-thirds of US companies, the CEO sits as the board's chair. When one single person serves as both chair and CEO, it is impossible to objectively monitor and evaluate his or her own performance.

Read the discussion case "Executive Compensation" on pages 190-192 then answer/discuss questions 1-7 that follow.

A study occurred where Americans were asked to guess the ratio of pay between CEOs and their workers and the ideal ratio of these people. The median guesstimate was that the CEO-to-worker pay ratio was 30-1. The ideal ratio estimate was 7-1. The real ratio of CEOs to their workers? 354 to 1. Twenty years ago, this ratio was just 20 to 1. President Obama was certainly right when he called economic inequality “the defining challenge of our time.”

It was reasonable for a CEO’s compensation to increase as the company expanded and became a larger entity, and the newly-granted shares and increasing stock options further aligned the CEO’s personal interests with those of the company and shareholders. In this sense, the second compensation package was also well-structured and not excessive. Seeing Sunbeam’s revenue rising and stock price climbing steeply upwards, Sunbeam’s shareholders and directors were fully convinced by Dunlap’s leadership, so they might perceive the increase in compensation amount necessary to retain and better motivate Dunlap to enhance the company’s value. Nonetheless, they neglected the fact that the increased portion of the equity-based compensation also further motivated the CEO’s dangerous behaviors pertaining to improper earnings management.

This report explores the issue of the pay that top executives make, and the reasons why they do. It also suggests improvements that can be made to make the system better. High Pay Seems Small When Compared To Company Profits Many companies pull in profits that are extremely high. When an employee of such a companies salary is compared to the amount of profit that the company earns, it starts to seem reasonable. It only makes sense that if the employee is directly responsible for the success of their company, then they deserve to get their payback. It seems ironic, but many salaries even look small once compared with a companies profits. Top Executives Are Under A Lot Of Pressure Being the CEO of a

Given the effect a CEO can have on a company's success, we can understand why their compensation packages