By now it has been very well documented that income inequality in the United States has proliferated, particularly over the last several decades. One large component of this is the enormous CEO salary pay as well as the hefty compensation packages that seem to make up much of the advanced CEO world. At the same time, workers’ wages have stagnated. It is important to examine some of the forces at work that have facilitated this seemingly irreversible trend of runaway stock options and wage stagnation.
Economist Dean Baker points out that there is a deregulatory framework in place in the U.S. that advances the interests of top management as opposed to shareholders. Because of the extremely close relationship that corporate boards enjoy with CEOs, it can be pretty tough to say no to exorbitant salaries and handsome equity packages. Members of these corporate boards have no incentive to operate as checks on such a system, because they reap many of the rewards as well.
As a result, it is unsurprising to observe then, that the ratio of executive compensation to worker compensation is totally out of line, especially when compared to other highly industrial countries. Increased economic power among CEOs and top managers ensure increased political power as well. Increased money lining the pockets of business elites leads to more influence in the political sphere, and undoubtedly more business-friendly policies such as deregulation and effectively low taxes.
The graph below clearly demonstrates how far CEO pay has come over the 45 years.
This is in stark contrast with the compensation of employees as compared to productivity:
As the graph clearly shows, both public sector and private sector wages have fallen by the wayside, even as productivity continues. One large factor is the de-unionization rate experienced over the last four decades. Sociologist Bruce Western conducted a study that measured the decline of unions' effect on income inequality and found that roughly one-fifth of the increase in hourly wage inequality among women and one third among men can be attributed to this decline in labor unions.
Because labor unions have historically provided a political voice as well as a voice in the workplace voice for workers, it is easy to perceive of the declining rate of unionization as a loss of political power for workers as well. As a result, policies such as free-trade agreements and right-to-work threaten to undermine the last shreds of worker solidarity that still exist.
There is going to have to be new corporate governance structures that provide a check on runaway CEO pay and advance the interest of shareholders. Increased labor representation will have to occur as well, as workers have far too small of a voice in issues of such monumental importance.