Despite Uncertain Economic Outlook Executive Salaries are on the Rise

While protests have broken out in the financial centers of many of the nation’s cities due to income inequality and unemployment, the turbulent period of recession following the stock market’s peak in 2007 has seen CEO compensation recover almost completely while growth in employee compensation has remained sluggish.

Since the beginning of economic recovery, chief executives at top companies have seen their earnings rebound at a rate much higher than that of the typical American. During the 2008 to 2009 recession, average CEO compensation fell by 38% from a 2007 high of $9.2 million. By the end of 2010 this amount had nearly recovered to reach $8.5 million, and by the end of 2011 executives are expected to be earning more than they were before for the recession had ever happened.

Most of the companies run by these executives are actually doing better than they were before the recession hit. While worker compensation remained stagnant, S&P 500 companies were able to increase their profits by 47% in 2010. This increase is primarily attributable to companies saving money through cost cutting measures and layoffs rather than generating an increase in growth, as greater revenue accounted for only 7% of the boost in profits. The total increase in profits has come at the expense of the American worker, not corporate leadership.

Despite growth and profits, these executives are not hiring. Unemployment currently sits at 8.6%, nearly twice that of the 2007 low of 4.4% prior to the economic downturn. In addition, average worker compensation increased by merely 2.1% to $33,190 during 2010 according to the Bureau of Labor Statistics. The increase was double that of inflation, although the average salary was lower than .5% of an average CEO.

When adjusting for inflation, the average salary of the workers in the United States has remained roughly constant since 1980. In the mean time, the ratio of CEO to worker pay has increased from being 35 times larger in 1980 to nearly 300 times larger today.

The average base salary for a CEO of a Fortune 500 company is approximately $2 million, where base salary is only one of several components of an executive’s total annual earnings. Other methods of compensation include incentive plans, stock options, employee benefits, and paid expenses. The highest paid CEOs can receive total compensation in excess of $100 million.

High level executives below the chief executive received much more modest increases in pay in 2010. CFOs saw a pay increase of 1.7 percent to $201,800, a jump more consistent with average workers. Presidents earned $248,600 in 2010, up from $241,900 for a 2.6% increase. Treasurers pulled in an average of $172,600 that year for an increase of 2.7%.

Since a majority of a CEO’s annual compensation comes from stock, the recovery of CEO earnings since 2007 can be understood as being a direct result of stocks bouncing back to their pre-recession levels. Unfortunately, the recovery of stock prices and overall profitability has been at the expense of the American worker.