CEO Salaries: What Is the Average Salary of a CEO?
By Shanon Lyon, special to PayScale.com
In 1970, CEO salary and bonus packages were typically about $700,000 – 25 times the average production worker salary; by 2000, CEO salaries had jumped to almost $2.2 million on average, 90 times the average salary of a worker, according to a 2004 study on CEO pay by Kevin J. Murphy and Jan Zabojnik. Toss in stock options and other benefits, and the salary of a CEO is nearly 500 times the average worker salary, the study says.
Dan Moynihan, principal of Compensation Resources, and expert in CEO salaries, theorizes that the shorter tenures of CEOs today than in years past could be one factor inflating the average salary of a CEO and widening the salary gap.
“I think there’s a capitalistic model that says ‘get as much as you can while it lasts because you don’t know how long it’ll last,'” he says. “I don’t think CEOs are doing more or less than they were 20 years ago and I don’t think line workers are either. Should [the salary gap] be rectified? Yes. Will it be? Probably not.”
Because CEO salaries are chart toppers in most companies, they tend to attract the most media attention. Less widely reported is the significant salary gap between employees and lower-level executive salaries. It varies by industry, but in most companies, the salary gap becomes pronounced at the vice president level, says Todd Milbourn, finance professor at the Olin Business School at Washington University. “This is when you start moving into a new pay echelon, but there’s still a pretty significant gap between, say, a senior vice president and a CEO,” he says.
CEO Salaries & Worker Morale
Though it is relatively rare, every year there is a story of a CEOs or other company leaders who reap substantial salaries while their company tanks and workers are shed. This can cause irreversible damage to worker morale. If your company is losing market share but the salary of a CEO continues to increase along with bonuses, feelings of discontent and frustration are inevitable. “When you have a thousand people who are unhappy and feel unfairly compensated, everyone’s going to be a little less efficient, and it’ll start impacting the bottom line,” Milbourn says.
Brent Longnecker, CEO salaries expert and president of Longnecker & Associates, an executive salaries and corporate governance consulting firm, is the first to admit that there are companies out there abusing the system without balancing the salary of a CEO with the average worker salary. He asserts, however, that in most cases, executive salaries and CEO salaries are reasonable and justified.
Why CEO Salaries Are Sky High
Where does the gap come from – and why are CEO salaries at major corporations so much higher than worker bee and mid-level executive salaries? a>