The average US CEO last year made only $178,400 (about the same as a dentist), and got a raise of less than 1%
|Occupation||Average Annual Wage, 2013|
|Average for All Workers
Every time CEO salaries of S&P500 companies are reported, there’s a lot of hand-wringing, criticism of “excessive CEO compensation,” and the inevitable comparisons of rising CEO salaries to stagnant pay for average workers, and how that contributes to rising income inequality, etc. For example, here’s how USAToday reported 2013 CEO pay in an article last week titled “Millions by millions, CEO pay goes up“:
When it comes to executive pay, 2013 could be one for the record books, with 15 CEOs and other key members of publicly held companies gaining membership into the $100 million-plus compensation club, likely the most since before the 2008 financial crisis.
USA TODAY’s analysis of Standard & Poor’s 500 companies headed by the same CEO the past two fiscal years shows 2013 median pay — including salary, bonus, incentive awards, perks and gains from vested shares and exercised stock options — jumped 13% to $10.5 million, a level buoyed by soaring stock prices that’s likely to rise as more companies meet annual Securities and Exchange Commission filing deadlines.
Coming in a year in which corporate earnings gains continue to come mostly from job cuts and streamlining instead of organic growth, as well as nearly a decade of stagnant wage growth for rank-and-file workers, continued gains in CEO pay underscore the disconnect between boardrooms and Main Street. Among the nation’s 104.8 million full-time workers, average median annual wages were $40,872 last year, up just 1.4% over 2012.
“The extremes are getting bigger and run smack dab into the debate of income inequality,” says veteran compensation consultant Alan Johnson.
MP: It should be noted that USAToday’s analysis includes the CEOs of only 200 of America’s largest multinational companies in the S&P500. According to the US Census, there are more than 27 million private firms in the US, so the 200 firms reported by USAToday represent only one of every 135,000 private firms in the US, or 0.00074% (less than 1/1000 of 1%). Note also that USAToday compares the annual wages of ALL full-time employees working at more than 27 million companies to the CEO pay of executives at only 200 companies.
We can get a more accurate and complete picture of CEO compensation by looking at wage data just released by the Bureau of Labor Statistics in its annual report on Occupational Employment and Wages for 2013. The BLS report provides “employment and wage estimates by area and by industry for wage and salary workers in 22 major occupational groups,” including the category “chief executives.” In 2013, the BLS reports that the average pay for America’s 248,760 chief executives was only $178,400. The 200 S&P500 firms reported by USAToday represent only one out of every 1,243 firms in the country that have a CEO at the head, and that small sample of 200 would represent only 0.08% of American CEOs, or less than one-tenth of one percent of all CEOs. The larger sample of CEOs reported by the BLS gives us a much better understanding of “average CEO compensation.”
For the larger sample of CEOs reported by the BLS, their average pay increased by only 0.88% in 2013, from $176,840 in 2012. In contrast, the BLS reports that the average pay of all workers increased by 1.42% last year to $46,440 from $45,790 in 2012. That’s right, the average worker last year saw an increase in their pay that was more than 60% greater than the increase in pay for the average CEO.
As the Wall Street Journal pointed out last week, the average U.S. orthodontist earns $196,270, or 10% more than the average CEO ($178,400). But you would certainly never think that from all of the media hype about “overpaid CEOs” and “excessive CEO compensation,” etc. We never hear about “overpaid orthodontists” or “excessive orthodontist compensation,” or the fact that orthodontist pay increased by 5.34% in 2013, or 6 times the 0.88% increase in the average CEO’s pay last year. You would also never think that the average dentist makes $168,870, almost as much as the average CEO. “Excessive dentist compensation”?
Other medical professionals like anesthesiologists ($235,000), surgeons ($233,000), obstetricians ($212,000), internists ($188,000), family practitioners $184,000), and psychiatrists ($183,000) all earned more on average last year than the average CEO. Even the average nurse anesthetist ($158,000) and petroleum engineer ($149,000) earned salaries last year that weren’t too far below the average CEO (see table above).
Bottom Line: Discussions about “excessive CEO pay” are distorted by looking at only an outlier group of the 200 CEOs of America’s largest companies, out of 248,760 chief executives nationwide. Of course, many young, risk-taking CEOs are running early stage startups and tech companies, and probably make even less than the average CEO as reported by the BLS, as Scott Drum points out to me in an email. Further, he comments that “They’re usually not in it for the salary. They’re in it for the payoff if things go well. If we reduce the size of the Big Payoff, don’t we affect the number of people trying to get there?” The fact that there are almost 250,000 ambitious CEOs making less than $200,000 today on average who are trying to someday be listed by USAToday as one of the top 200 highest-paid CEOs in the US is a sign of a dynamic, wealth-generating economy. We should applaud the richest 200 CEOs as a group of the most successful American business professionals, and not vilify them. And we should keep in mind that they are an outlier, elite group, and not representative of the average CEO in America, who earns about as much as the average dentist.