The CEO-to-Worker Pay Gap Is Climbing to Truly Obscene Levels

A new report finds that the gap between worker pay and CEO compensation continues to grow at some of the United States’ lowest-paying firms. At dozens of companies, the ratio exceeds one thousand to one.

CEO of Estee Lauder, Fabrizio Freda (R), attends a "Essenze" Collection launch event in New York City. (Brian Killian / FilmMagic via Getty Images)

Even as a tighter labor market increases workers’ leverage, the distance between employee pay and CEO compensation continues to grow at some of the lowest-paying firms in the United States.

A new report from the Institute for Policy Studies (IPS) analyzes compensation at the three hundred publicly held US corporations with the lowest median wages in 2020. The report, authored by Sarah Anderson, Sam Pizzigati, and Brian Wakamo, finds that the average gap between CEO and median worker pay jumped to 670:1 in 2021, up from 604:1 in 2020. Forty-nine of the firms had ratios above 1,000:1.

Wages at 106 of the firms did not keep pace with the 4.7 percent average US inflation rate last year, and of those, sixty-seven spent resources buying back their own stock, with repurchases totaling $43.7 billion. The biggest buybacks took place at Lowe’s, Target, and Best Buy. As the IPS notes, “With the $13 billion Lowe’s spent on share purchases, the company could have given each of its 325,000 employees a $40,000 raise. Instead, median pay at the company fell 7.6 percent to $22,697.” None of the big-box stores’ retail workers are currently unionized, though there are nascent union campaigns underway at several Target stores.

Of the three hundred companies analyzed by the IPS, 40 percent received federal contracts between October 1, 2019 and May 1, 2022, for a combined value of $37.2 billion. Only six of the 119 contractors had pay gaps of less than 100:1. Maximus, a company that handles federal student debts and Medicare call centers, took in the most federal contracts of any of the firms, with $12.3 billion during the period under consideration. IPS notes that Maximus CEO Bruce Caswell made $7.9 million in compensation, or 208 times the firm’s median income and thirty-six times the salary of the officials who direct the agencies awarding the contracts.

Amazon is the second-largest federal contractor of the group, with at least $10.3 billion in contracts, the majority of which came from providing web services for the National Security Agency (NSA). As IPS notes, Amazon’s new CEO, Andy Jassy, received $212.7 million in compensation in 2021, 6,474 times the company’s median pay and the highest CEO pay among the three hundred corporations.

The second-highest-paid CEO in the bunch is Estee Lauder CEO Fabrizio Freda, who received a 258 percent pay raise in 2021, totaling $66 million. That amounts to 1,965 times the median pay of $33,586 among the company’s roughly 62,000 workers worldwide. None of the firm’s US workers are unionized. Coming in third is Penn National Gaming head Jay Snowden, who received a $65.9 million payout, equal to 1,943 times the company’s median pay of $33,930. Penn National currently employs 21,973 people at hotels and casinos; under 20 percent of the company’s staff are unionized.

As for near-term policy solutions to the CEO-to-worker pay gap, the IPS notes that a recent poll finds that 62 percent of Republicans and 75 percent of Democrats support capping CEO pay relative to worker pay regardless of company performance. The executive branch could grant preferential treatment to companies with lower CEO-to-worker pay ratios (not to mention refusing to work with companies that are engaged in violations of labor law). Corporate taxes could target those companies with the widest CEO-to-worker pay gaps, and the possibility of banning top executives from selling their personal stock for a multi-year period after a buyback could be explored.

Those reforms don’t address the cause of such mind-boggling inequality — i.e., the existence of those who buy labor and those who must sell it — but they would help redistribute wealth downward, adding pressure on firms to pay workers more and CEOs less.