From the American Federation of Labor – Congress of Industrial Organizations (AFL-CIO):

“According to Business Week, the average CEO of a major corporation made 42 times the pay of a typical American factory worker in 1980. By 1990, that ratio had more than doubled to 85 times the average factory wage and almost quadrupled again to a staggering 326 times more in 1997. If that rate of exponential growth were to continue, the average CEO would make the equivalent salary of more than 150,000 American factory workers in 2050.

“Defenders of runaway CEO pay argue that market forces are at work determining executive compensation levels and that CEOs are justly rewarded for increasing their company’s stock prices. But are America’s CEOs entitled to such lucrative pay deals based on their performance? In 1998, the business press headlines exploded with stories of pay for mediocrity:

“‘Pay for No Performance: CEOs were supposed to get top dollar only when they got top results. Now, many are getting top dollarno matter what the results.’
The Wall Street Journal, April 9, 1998

“‘Executive Pay: Stock options plus a bull market made a mockery of many attempts to link pay to performance.’
Business Week, April 20, 1998

“‘Did They Earn It? Sometimes there’s no connection between pay and performance.’
Forbes, May 18, 1998

“When it comes to executive pay, stock option grants appear to have the Midas touch. As the stock market has broken record after record, they have become an increasingly popular form of executive compensation. According to the executive compensation consulting firm Pearl Meyer & Partners, stock options make up two-thirds of a CEO’s pay, up from one-third in the 1960s.

“Instead of having to beat their competitors, CEOs with stock option-fueled compensation packages are graded on a curve: the rising stock market. As stock prices increase generally, even mediocre CEOs can realize large gains from their options. Human resources consultant William M. Mercer Inc. estimates that only a quarter of option grants awarded to CEOs contain any sort of link to performance, such as premium-priced or indexed stock options. . . .

“A recent research report by London-based economic advisor Smithers & Co. recalculated the profits of the 100 largest U.S. companies by adjusting for the value of their executives’ stock options. The study found that 11 firms went from profit to loss, and another 13 had their profits cut in half. In addition, the Investor Responsibility Research Center has found the average potential dilution of shareholder value from stock option plans is 9.2 percent for S&P 500 companies.

“Do American companies have to pay exorbitant CEO salaries because there just are not enough capable executives in the United States? Corporations abroad do not seem to have trouble motivating their CEOs with less stratospheric pay packages. According to the international human resources company Towers Perrin, the average CEO in the United Kingdom makes $645,540; in Japan, $420,855; and in Germany, $398,430 — far less than the average American CEO. When Germany’s Daimler-Benz acquired the substantially smaller American car producer Chrysler, Chrysler CEO Robert Eaton was making eight times the salary of Daimler-Benz CEO Juergen Schrempp. . . .”