If AI Is Taking Jobs, Why Are CEOs Still Making Millions?

Since the late 1970s, CEO incomes in the United States have grown much faster than those of the average worker. The Economic Policy Institute estimates that CEO compensation has grown 1,322% since 1978, while typical worker compensation has risen 18%. Today, a chief executive of a company in the Standard & Poor's 500 Index, or S&P, earns far more than an average worker. In other words, the CEO is making 204 times what the average worker is making. But most of a CEO's income does not come from their base salary. It comes from stocks and compensation tied to the company's value. Well, CEO pay is largely made up of bonuses, so 84% of CEO pay is bonuses in some form. For example, stock buybacks raise the market price and directly increase CEOs' pay. Of the top 15 non-financial U.S. companies that spent the most on buybacks last year, three-quarters of those CEOs have pay based on two metrics, earnings per share and total shareholder return. Overall, these figures show that CEOs' pay is driven more by financial incentives and corporate structures than by actual performance. So why CEOs earn so much in the U.S.? In recent decades, CEO compensation in the United States has grown exceptionally, surpassing $17 million annually on average. What was once a high salary compared to the average worker has now become multi-million dollar packages, up to 200 times more than a typical salary. This change reflects a new way of understanding leadership, where more than 70% of executive pay is tied to stocks. Since the late 1970s, the gap between executives and workers has continued to widen, with CEO pay increasing by more than 1,300%. While average wages grew slowly, with real gains close to 30%, executive compensation accelerated alongside financial markets. To understand this phenomenon, it is not enough to look at how much CEOs earn, but also to analyze how and why they are paid this way. In other words, the chief executive is paid 500 times more than the average worker in the country in question. The growth in CEO salaries is largely explained by financial incentives, which account for up to 90% of their pay. Thus, stock-based compensation and the role of boards of directors explain a model present in more than 80% of large companies. One of the key factors is the structure of executive packages, which are usually evaluated Today, the base salary represents only a small portion of a CEO's total income, with amounts close to $1 million annually. Most of their compensation comes from stocks and bonuses, which account for more than 70% of total pay. This directly links a CEO's wealth to the stock price, which can rise or fall by more than 20% in a single year. Your CEO can suck, but if the market is up in general, they're still getting a big bonus. And even when their compensation is down, they can wait to cash in a lot of those shares until the market is back up again. This system is justified under the idea of aligning interests, which is why more than 85% of publicly traded companies tie CEO pay to the stock price. If the company's value rises, the CEO benefits immediately, since incentives can be cashed out in periods of less than 12 months. For example, in the 2000s, Larry Ellison structured much of his oracle compensation around stock In other words, each time oracle's value increased or strategic goals were met, Ellison benefited almost immediately. Larry Ellison, founder and top shareholder of software giant Oracle, has seen his net worth soar by $70 billion in one day. However, external factors such as favorable market cycles account for up to 50% of stock growth during bullish periods, without significant internal changes. In some cases, CEOs receive packages composed exclusively of shares tied to specific capitalization or revenue targets. Even without a traditional salary, the value of these packages can grow by several billion dollars in a few years, depending on the market. These schemes reinforce wealth concentration, as less than 0.1% of executives control a disproportionate share of stock value. What if the company isn't doing well? What if the economy isn't doing well? And compensation committees are not very good about lowering CEO pay when things aren't so good. Another central element is the role of boards of directors, which approve these payments through non-binding internal votes. CEO salaries are approved by boards that, on average, have between 9 and 11 members, many of whom are current or former executives. This generates constant peer comparisons, as more than half of the directors have held executive positions in other large companies. This phenomenon, known as the stepladder effect, drives gradual salary increases that typically place the CEO above the median of their reference group. Although shareholders can vote consultatively, these votes are non-binding in more than 95% of companies, leaving the final decision to the board. The disconnect between CEO pay and real productivity is one of the most debated points, as labor productivity has grown faster than executive salaries adjusted for performance. A new paper says that high CEO compensation and long-term company performance aren't necessarily aligned. Meanwhile, workers face a different reality, with real wages almost stagnant since the 1980s. Although productivity has increased, real wages have grown much more slowly, with cumulative growth close to 15%. This is concentrated on the value generated in top management and shareholders, who now capture the majority of corporate profits. In response to this scenario, alternative models have emerged to reduce the wage gap, such as employee stock ownership schemes. Aquilar says that bump is because companies offered more bonuses and other cash payouts to incentivize employees amid worker shortages caused by the pandemic. One of the most notable alternative models is employee stock ownership. This system is present in more than 6,500 companies in the United States, across various sizes and sectors. It allows workers to become partners in the company and directly share in the benefits of corporate success. As a result, employees participate in profits and have a direct incentive to commit to performance outcomes. Companies that implement this model show lower employee turnover and up to twice as much employee satisfaction. They also achieve greater financial stability, especially in the long term, accumulating wealth for retirement. CEO pay concentrates value at the top of the corporate hierarchy and has already reached $17.1 million per year. This is nearly 192 times more than the average worker. Although it has generated vast fortunes, it has also widened wage gaps, with a 1,370% increase for CEOs compared to 377% for workers since 1978. This scenario has sparked debates about sustainability and equity. 67% of Americans consider wage inequality a serious problem. It has pushed companies to explore more inclusive models, where employees also share in wealth, reporting up to two times lower turnover and higher engagement. As a result, workers feel that their effort directly impacts the company's success. An employee-owned business is one in which the employees, rather than external shareholders, hold a significant stake in the company. It's a business model proven to better engage, reward and attract staff. The evidence indicates that paying a CEO more does not guarantee better long-term results. Beyond multi-million dollar figures, this debate reveals how value is distributed within companies and what kind of economic growth society aims to build. Financial incentives do not always reflect the real effort of workers or their contribution to a company's success. Despite attempts to link part-of-employee pay to corporate performance, income differences remain enormous. Although companies have tried to incentivize workers through stock-based pay, the wage gap remains and will continue to remain huge in the United States.