What if the compensation for all S&P 500 CEOs were confiscated and redistributed to rank-and-file workers?

From Mark Perry.

"I wrote a few days ago on CD about how both Hillary Clinton and Bernie Sanders have been criticizing “excessive CEO pay.” A campaign ad for Hillary tells us that “On average, it takes 300 Americans working for a solid year to make as much money as one top CEO. It’s called the wage gap.” In a Tweet last month, Bernie Sanders lamented that “CEOs make 300 times what their workers make. That is simply immoral and must be dealt with.” A few years ago, the AFL-CIO made this statement:

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 CEO-to-worker pay ratios are simply unconscionable.

OK, let’s assume that Hillary and Bernie are correct that CEO pay in America is excessive and immoral, and is a problem that “must be dealt with,” according to Sanders. Let’s also accept the AFL-CIO’s statements above that today’s CEO-to-worker pay ratio is unconscionable, and that America’s corporate CEOs have been gobbling up a greater and greater share of the payroll pie at the expense of the average worker in recent decades.

In that case, let’s analyze what would happen if we could either: a) confiscate 100% of the compensation paid in 2014 to the S&P 500 CEOs and redistribute all of that income to the 97,734,00 production and non-supervisory workers cited by the AFL-CIO as America’s rank-and-file workers, or b) cap the CEO-to-worker pay ratio at either the “less unconscionable” 1980 level of 42:1 or the “less immoral” 1960 ratio of 20:1 and confiscate and redistribute the excess CEO pay above those caps to the 97.734 million rank-and-file hourly workers. The table above summarizes how that confiscation and redistribution of CEO pay 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 $13.5 million in average total compensation in 2014, and those 500 CEOs as a group would have therefore generated $6.75 billion in compensation. If that total amount of almost $7 billion was confiscated and redistributed equally to the 97.734 million workers that the AFL-CIO uses for its “average worker pay” calculation, each of those rank-and-file hourly workers would have received $69.07 in extra annual pre-tax income in 2014, or about 3.5 cents per hour for a 40-hour workweek and about 4.2 cents per hour for a 33.7-hour workweek (which is the average workweek for the AFL-CIO’s rank-and-file workers, many of whom work part-time), see first row of data in the table above.
2. If we could impose the 1980 CEO-to-worker pay ratio of 42:1, the average S&P 500 CEO compensation in 2014 would have been only about $1.5 million (42 x $36,134 in average worker pay according to the AFL-CIO), and the 500 CEOs would have earned only $759 million in 2014, instead of $6.75 billion. Distributing the nearly $6 billion in excess earnings in 2014 to the 97.734 million rank-and-file workers would have increased their annual pre-tax income by $61.30, and their hourly pay by 3.1 cents or 3.7 cents before tax, depending on the number of weekly work hours (see middle row of data in the table above).
3. Going all the way back to the 1960s, and capping the CEO-to-worker pay ratio at 20:1 would mean that the average annual CEO compensation in 2014 would have been only about $723,000 (20 x $36,134 average worker pay), generating nearly $6.4 billion in excess CEO pay to redistribute to average workers. Each of the 97.734 million rank-and-file workers would have gotten an increase in their annual pay of about $65 in 2014, and their hourly pay would have gone up by less than 4 cents, before tax (see last data row in the table above).

MP: Even if Bernie Sanders, Hillary Clinton, and the AFL-CIO had their way and could “deal with” the unconscionable, immoral “CEO wage gap” by confiscating 100% of the compensation of all 500 CEOs in the S&P 500, and then redistribute that $6 billion of “excessive” executive compensation to America’s 97,734,000 rank-and-file workers, the average full-time worker’s income would only increase by 3.5 cents per hour – and that’s before taxes. And if either Hillary or Bernie get elected as president and issues an executive order capping CEO compensation at the 20:1 CEO-to-worker pay ratio that prevailed in 1960, and redistributed the excess CEO pay to the rank-and-file, the average worker would see his or her weekly pay increase by $1.32 – before taxes. Big deal.

Bottom Line: 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 adverse economic effects of the Great Recession, the slowest and weakest economic recovery in more than 50 years — but the increased compensation for America’s top S&P 500 executives certainly isn’t one of them. To stimulate job growth, and increase the wages and income of the average worker, Clinton and Sanders should be looking at ways to increase and expand economic opportunity in America. Unfortunately, most of their progressive policy prescriptions involve greater government involvement in the economy, more regulations, and higher taxes, which will likely retard economic opportunities and slow economic and wage growth. In that case, don’t expect the “CEO wage gap” to change much under a Clinton or Sanders administration."