What if we could confiscate 100% of CEO compensation for all S&P 500 companies and redistribute to average workers?

From Mark Perry.

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As I’ve reported before on CD, the AFL-CIO Executive Paywatch website decries the fact that in 2013 the CEO-to-worker pay ratio was 331:1, based on a comparison of the average compensation of 350 CEOs in the S&P ($11.7 million) to the $35,239 average annual pay for the 94.5 million workers in the BLS employee category “production and nonsupervisory workers.” According to the AFL-CIO, the CEO-to-worker pay ratio has increased from 46:1 in 1983, to 195:1 in 1993, to 301:1 in 2003 and to a record 331:1 last year. Further, we learn from the AFL-CIO that:

America is supposed to be the land of opportunity, a country where hard work and playing by the rules would provide working families a middle-class standard of living. But in recent decades, corporate CEOs have been taking a greater share of the economic pie while wages have stagnated and unemployment remains high. Today’s ratio of CEO-to-worker pay is simply unconscionable. While CEO pay remains in the stratosphere, production and nonsupervisory workers took home only $35,239 on average in 2013.

OK, let’s assume that the AFL-CIO is correct that corporate CEOs have been gobbling up a greater and greater share of the payroll pie over the last 30 years. Well then what would happen if we could either: a) confiscate 100% of the compensation paid last year to all of the S&P 500 CEOs and redistribute that money to the 94.5 million production and nonsupervisory workers, or b) cap the 2013 CEO-to-worker pay ratio at either the 1983 level (46:1) or the 1993 ratio (195:1) and confiscate and redistribute the excess CEO pay above those caps to the 94.5 million workers? The table above summarizes how that confiscation of CEO pay and redistribution would affect the average worker’s annual income and hourly pay rates. Here’s a summary:

1. The AFL-CIO reports that CEOs of companies in the S&P 500 received $11.7 million in total compensation last year on average, based on an analysis of available data from 350 companies in the S&P 500. Assuming that $11.7 million was the average pay for all S&P 500 companies, the CEOs as a group would have generated $5.85 billion in income last year. If we could confiscate that total amount of almost $6 billion and redistribute it equally to all 94.5 million workers that the AFL-CIO uses for its “average worker pay” calculation, each worker would have received $61.90 in extra annual pre-tax income last year, or about 3 cents per hour for a 40-hour workweek and about 3.5 cents per hour for a 35-hour workweek (see first row in the table above).

2. If we could impose the 1983 CEO-to-worker pay ratio of 46:1, the average S&P 500 CEO compensation last year would have been only about $1.6 million, and the 500 CEOs would have earned only $810 million in 2013, instead of $5.85 billion. Distributing the approximately $5 billion in excess earnings last year to the 94.5 million workers would have increased their annual pay by $53 and their hourly pay by about 3 cents, before tax (see middle row in the table above).

3. Imposing the 1993 CEO-to-worker pay ratio of 195:1 would mean that the average CEO compensation last year would have been only about $3.4 million, generating nearly $2.5 billion in excess CEO pay to redistribute to average workers. Each of the 94.5 million workers would have seen an increase in their annual pay of less than $26, and their hourly pay would have gone up by less than 2 cents, before tax (see last row in the table above).

MP: Even if the AFL-CIO could have engaged the services of a magic genie (or the federal government) to confiscate 100% of the compensation of all US CEOs in the S&P 500 last year, and then redistributed that $6 billion of executive compensation to America’s 94.5 million middle-class workers, the average worker’s income would have only increased by about $1 per week – and that’s before taxes. And if the AFL-CIO could have capped CEO compensation last year at the 195:1 ratio of CEO to average worker pay that prevailed 20 years ago, and redistributed the excess above last year’s actual CEO pay, the average worker would have seen his or her pay increase about 50 cents a week. Big deal.

There might be a lot of reasons that average worker pay has stagnated over the last decade – intense international competition, an increase in fringe benefits as a share of total worker compensation that has slowed monetary wage increases, the Great Recession, the jobless recovery, the new two-tiered wage systems of autoworkers and other industries — but the increased compensation for America’s top executives certainly isn’t one of them."