- The pay gap between CEOs and their employees continues to grow.
- A recent report reveals median employee pay did not keep pace with inflation in 2021.
- Chief Human Resources Officer at Digital Marketing Holdings Mark Schell expands on this pay disparity and how it affects the future of work.
The gap between CEO and employee salaries continues to expand, despite overwhelming backlash from low wage employees.
Within a year during the pandemic, on average CEOs gained “29% raises while their median worker pay fell by 2%,” the Institute for Policy Studies (IPS) found.
By 2021, chief executives at companies with the lowest-paid staff made an average of $10.6 million salaries while the median worker received $23,968, the report revealed.
In fact, the IPS discovered that the average gap between CEO and median worker pay in their 2021 sample “jumped to 670 to 1, up from 604 to 1 in 2020,” with 49 firms having ratios above 1,000 to 1.
According to this report, the automobile, restaurant and leisure, household goods and apparel, health care providers, and internet industries — companies that employ larger quantities of low wage workers — demonstrate the largest pay gap ratios.
Many are looking for ways to halt this disparity from its current expansion. From excise tax bills to pay ceilings for CEOs, proposed fixes to narrow the gap are gaining momentum in Washington, benefitspro wrote.
In this way, these disparities will affect the future of work, because “pay levels are an indicator for people of how a CEO is treated vs. how workers are treated in a company,” JUST Capital chief strategy officer Alison Omens told Forbes.
To explain more about this gap, Mark Schell, Chief Human Resources Officer at Digital Marketing Holdings, expands on how this has grown overtime and what this might mean for the future of work.
Allwork.Space: What can be done to narrow the growing pay gap?
Mark Schell: The wage gap between CEOs and workers in the United States is staggering. That said, and this may be provocative, are high salaries of CEOs at Fortune 500 companies impacting what is paid to a typical worker at those firms? Does a Staff Accountant earn a lower wage as a result of what the board of directors pays the CEO? I do not see any evidence that supports that assertion, nor have I ever professionally been part of a conversation that ponders that action.
I think an important piece in this whole equation is to consider the impact that this gap has on women and BIPOC pay. Those groups make up a disproportionately large share of lower wage workers and, conversely, hold a small share of C-level leader roles. In my opinion, corporations focusing on making meaningful long-term progress in this area is a more noble effort in closing income and wealth inequality.
However, if we were to focus on actions that could be taken to narrow the growing pay gap, I think that would need to come by way of federal regulations. Perhaps making available tax incentives for companies that maintain a “desired” CEO-to-worker pay ratio or conversely impose tax penalties for those that do not could have an impact.
Allwork.Space: Is this good for businesses in some way to do this because it makes them appear profitable enough to pay huge amounts to their executives?
Mark Schell: Over the last 18 months, the labor market has become extremely competitive, and CEOs are no different than other job seekers. They want to be paid competitively and fairly for the job they are doing, comparatively speaking.
I do not think that a reasonable person can make the case that their respective value to the organization is six hundred times the contributions of an employee at large, but to reiterate, I also do not think that employee pay is necessarily impaired by CEO wages or intentionally kept lower to improve profitability.
Allwork.Space: What’s the forecast for this in the future of work?
Mark Schell: Worker pay, in some cases, will increase especially for those skill sets most specialized and scarce. A more likely scenario, with the flexibility of remote work, is that individuals may consider moving to a lower cost of living market to increase the value of dollars earned.
But you can expect that, over time, businesses will continue to keep a close eye on labor costs and make a concerted effort to move toward automation of certain jobs and offshore labor solutions where practicable to remain competitive.
Chief Customer Officer at Adzuna Paul Lewis speculates what the future of this gap may look like for CEOs and workers alike:
Allwork.Space: Is there any chance it actually gets better?
Paul Lewis: According to a poll from Just Capital, the vast majority of Americans believe CEOs are being compensated too much. With the growing pressure for businesses to be ethical from job seekers, consumers and the government, things will need to change to create a foundation of transparency, trust and loyalty.
This is something Gen Z values; according to a Sezzle survey, 90% of Gen Z respondents believe companies must act on social and environmental issues and 75% will do research to see if a company is being honest when it takes a stand on issues. In the era of the Great Resignation, companies will need to improve pay rates, especially for the lowest paid workers, in order to attract and retain the staff they need to be successful.
Allwork.Space: Is the gap just going to keep getting bigger?
Paul Lewis: The gap has grown significantly, and it seems like it will only continue to get larger. In the 1950s, a typical CEO made 20 times the salary of his or her average worker, a far cry from today’s environment with ratios among the companies analyzed of 670 to 1.
Things may get worse before they get better. But the current economic climate — high inflation, high worker turnover, cost-of-living crisis, etc. — could create a tipping point where companies have to reassess how fairly they are compensating their employees in order to plug staffing holes. There is increasing outrage around the CEO/employee wage gap, which could likely lead to a larger wave of unionization and potentially a workers protest.