Worker Pay versus Executive Pay
Last year, average CEO pay rose 2.6 percent to $10,544,470, according to an Associated Press survey of S&P 500 firms.1 That’s 344 times the pay of an average American worker.2 The gap between CEOs and minimum wage workers runs even wider. In 2007, CEOs averaged 866 times as much as minimum wage employees.

Private investment managers continue to push U.S. business leader paychecks off the charts. Last year, the top 50 hedge and private equity fund managers earned an average of $588 million, according to Alpha magazine.3 That’s more than 19,000 times as much as average worker pay.

2007 Compensation of the Top Five Highest-Paid Private Investment Fund Managers and CEOs

Private Investment Fund Managers Public Company CEOs John Paulson, Paulson & Co. $3.7 billion John Thain, Merrill Lynch $83 million George Soros, Soros Fund Management $2.9 billion Leslie Moonves, CBS $68 million James Simons, Renaissance Technologies $2.8 billion Richard Adkerson, Freeport-McMoran $65 million Philip Falcone, Harbinger Partners $1.7 billion Bob Simpson, XTO Energy $57 million Kenneth Griffin, Citadel Investment Group $1.5 billion Lloyd Blankfein, Goldman Sachs $54 million

Sources: Private investment funds: Alpha magazine. CEOs: Associated Press.

The tax loopholes we examine in this year’s Executive Excess have, in some cases, sat lodged in our tax code for many years. But the exploiting of these loopholes — for executive personal aggrandizement — is a much more recent phenomenon, a development that has intensified only since the early 1980s.

What has changed on the American economic scene, over the last three decades, to make
these loopholes so exploitable? Economic power, to put the matter most simply, has concentrated in America’s executive suites. The mid 20th century checks and balances of our economic system — the building blocks of post-World War II American middle class prosperity — have been swept away.

The most important of these checks and balances: a vital trade union presence in the private sector. A half-century ago, over one-third of American private sector workers belonged to unions. Bargaining between these workers and their employers set wage patterns throughout the U.S. economy, in both organized and unorganized workplaces, and served to restrain executive rewards at the top of the corporate ladder.

Today, according to the latest Bureau of Labor Statistics survey data, only 7.4 percent of private-sector workers belong to unions. Top executives, at the vast majority of America’s workplaces, face no institutional challenge from their workers. The absence of that challenge leaves executives free to pocket rewards at levels that would have seemed recklessly greedy only a generation ago.

Recent academic research has demonstrated the executive pay difference that a union presence can make. In one survey, released last year, researchers found that CEOs at nonunion companies take home nearly 20 percent more than their fellow executives in unionized firms.4 Workers in union companies, meanwhile, make $200 more a week than their counterparts in nonunion firms, $863 a week for union employees, only $663 weekly for their nonunion counterparts.5