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May 13, 2021

US millionaire CEOs received a 29% pandemic pay raise in 2020

US millionaire CEOs received a 29% pandemic pay raise in 2020

Regular workers at the same firms, however, saw a 2% pay decrease, according to a new report released by the Institute for Policy Studies on Tuesday.   

As reported in the Guardian, the millionaire chief executives of some of America’s lowest-paid companies saw an average pay rise of 29% in 2020 as companies gave leaders large bonuses and more forgiving performance benchmarks during the Covid-19 pandemic while their workers saw their pay decrease by 2%.

The Institute for Policy Studies, which looked at the 100 companies with the lowest median wage for workers in the S&P 500 index, calculated that the average CEO compensation in 2020 was $15.3m, while median worker pay was $28,187, a 29% rise and 2% fall, respectively, when compared to 2019.

For example, David Gibbs, the CEO of Yum Brands—parent company of KFC, Pizza Hut, and Taco Bell—received a $1.4m cash bonus and stock grant valued at more than $880,000 after the company changed his performance metrics during the pandemic. Gibbs’ 2020 compensation totalled $14.6m while the company’s median pay was $11,377, according to the report.

The report’s authors recommend using tax policy to incentivize corporations to narrow their pay gaps by curbing executive compensation and raising worker wages.

As put forward in the Tax Excessive CEO Pay Act, a bill introduced by Bernie Sanders in March which is currently pending in Congress, companies with pay gaps between their highest-paid executive and median worker of more than 50 to 1 would face graduated rate increases. The increases would start at 0.5 percentage points on ratios of more than 50 to 1, topping out at 5.0 percentage points for companies with gaps above 500 to 1.

The Institute for Policy Studies says “It’s time for public policy to shift corporate America away from a business model that creates obscene wealth for a few at the top and economic insecurity for so many of the rest of us.”

Michael L. Bognanno has written about “Efficient markets, managerial power, and CEO compensation,” for IZA World of Labor. He tells us: “Uproar over high executive pay often accompanies macroeconomic or stock market downturns—when the disparity in pay between top executives and regular workers is most unsettling and poor stock returns call executive performance into question. CEO pay warrants this attention because it is both large and growing in relation to firm financials.”

Bognanno says that measures regulating CEO pay in the US have largely been ineffective, or even counterproductive. He suggests that, “Although empirical evidence of effectiveness is lacking, measures that enhance the transparency of compensation packages and strengthen the voice of shareholders on pay issues might help move CEO pay toward just levels. Lengthening the vesting periods for equity-based compensation and stock options, though not necessarily to the same extent for all firms, might help improve incentives.”

Read Michael L. Bognanno’s IZA World of Labor article here.
Find more IZA World of Labor content on personnel economics.