As CEOs’ compensation has returned to greener pastures, the same cannot be said for the average worker.
In Maryland last year, the median employee, including managers, earned $39,750, according to U.S. Department of Labor figures. That was up by almost 2 percent from 2009.
While Maryland’s median salary was some 17 percent higher than the national average, the 2 percent increase didn’t impress Neil Bergsman, director of the Maryland Budget and Tax Policy Institute. The research group is a project of the Maryland Association of Nonprofit Organizations.
“Median household income remains down,” Bergsman said. “Hours are depressed … The recovery is mostly for the investors and executives, but not for working people.”
The average compensation for CEOs last year was 343 times greater than what the average American worker made in 2010, according to the AFL-CIO. That ratio actually has declined since 2000, when the average CEO made 525 times more than the average employee.
Last year’s Dodd-Frank finance reform law requires public companies to start disclosing how much their CEO makes compared with the average employee.
It may seem hard to justify rising compensation for CEOs which is tied to stock market gains, improved efficiency and larger corporate profits when the unemployment rate is still relatively high, said Lemma W. Senbet, the William E. Mayer Chair Professor of Finance and director of the Center for Financial Policy at the University of Maryland, College Park.
“The average worker is just lucky to find a job and hold onto it,” Senbet said.
But greater wealth and value creation among corporations help grow the economy, which in turn, benefits workers, he said. And for companies to attract top talent to grow those companies, they must continue to pay them well, Senbet said.
The recent improvements in Securities and Exchange Commission disclosure rules, “say on pay” and corporate governance should help the situation, he said. But an unresolved question is whether the corporate governance improvements of recent years really have “teeth,” Senbet said.
“I think we are in a transitional phase when it comes to understanding the full impact of these movements,” he said.
Peer pressure is another factor in executive pay. The pay-setting process depends on the peer group analysis, and that is likely to lead to an increase in CEO pay, as most companies target pay above the median, Senbet said.
“Corporate directors should be focusing on linking pay to performance,” Senbet said. “Unfortunately, that is still a work in progress.”