Study: CEO pay 364 times U.S. average

Critics say the report's numbers are inflated

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Chief executives of American companies made an average of $10.8 million last year, more than 364 times the average pay of American workers, according to a new study by two groups advocating changes they say would lessen the disparity.

The report was issued today by the Institute for Policy Studies and United for a Fair Economy, advocacy groups that are frequent critics of corporate America. Their 14th annual study calls the gap between what CEOs and average workers take home "unconscionably wide."

"The outrageously massive rewards now attainable at the top of our economic ladder do our society no good," the report concludes.

Their critique comes as executive compensation is becoming a highly charged political issue in Washington, D.C.

The study compares the average pay of Fortune 500 CEOs based on Associated Press calculations with $29,544, the average pay of American production workers according to U.S. Department of Labor figures. The Labor Department figure reflects full- and part-time workers, including those who work more than one part-time job.

"We feel like we're getting at something that really reflects working America," said co-author Sarah Anderson of the Institute for Policy Studies.

Critics say the report's methodology makes the gap appear to be wider than it is.

"I think they're trying to spin this a certain way," said Brian Bethune, an economist with Global Insight in Lexington, Mass.

Mr. Bethune said average CEO pay is not as good a measure as median pay, which would disregard unusually high- or low-paid CEOs whose compensation skews averages.

Moreover, the study does not provide any measure of pay in comparison to performance, which would be the basis for determining how justified the gap is, he said.

Executive compensation consultant Frederick W. Cook told a Congressional committee last year that using average CEO pay inflates that number while including part-time workers lowers the average pay figure for American workers.

"The calculations behind these statistics have been chosen to produce high CEO-pay ratios for maximum propaganda value," Mr. Cook told the House Financial Services Committee about the two groups' 2005 report.

Based on Mercer Human Resource Consulting calculations of median CEO pay and U.S. Labor Department figures for median annual earnings of full-time workers aged 25 to 64, CEOs made only 187 times the average American worker in 2004, not 430 times as measured by the two groups, Mr. Cook testified.

According to this year's report, CEOs received an average of $1.3 million in pension benefits last year. By contrast, less than 60 percent of households led by someone aged 45 to 54 had a retirement account in 2004. Between 2001 and 2004, those retirement accounts gained only $3,775 annually, the report states.

The study's authors calculated that it would take a minimum-wage worker 36 years to earn the $438,342 CEOs received on average last year in club memberships, corporate jet use and other perquisites.

According to the report, the 20 highest-paid CEOs of U.S. public companies were paid an average of $36.4 million last year, three times more than the 20 highest-paid European CEOs, 38 times more than the 20 highest-paid leaders at U.S. nonprofit organizations and 204 times more than the 20 highest-paid generals in the U.S. military.

The two groups advocate narrowing the pay gap by changing the tax code and other laws. Limiting the amount of executive pay companies can expense to 25 times the pay of a company's lowest-paid worker would generate more than $1.4 billion in tax revenue from fewer than 400 companies, the report states.

The authors also favor imposing higher tax rates on private equity and hedge funds, capping deferred compensation contribution limits, denying federal contracts to companies with excessive pay disparities and increasing the tax rates paid by America's richest taxpayers.


Len Boselovic can be reached at lboselovic@post-gazette.com or 412-263-1941.


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