CEO-to-Worker Pay Ratio
Ratio of CEO realized compensation to typical worker compensation
“The gap between CEOs and workers exploded after 1971 as fiat money enabled financialization.”
The CEO-to-worker ratio stayed below 40:1 until the mid-1980s, then surged to 366:1 in 2000 before settling around 290:1 in 2023. The explosion correlates with stock option compensation, financial deregulation, and changes in corporate governance — not directly with the end of the gold standard.
Perspectives
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Compensation structure, governance, and policy drove the gap
The CEO-to-worker pay gap was driven by stock-based compensation, tax incentives, weak governance, and declining worker bargaining power.
This is a real and concerning trend, but the timing and mechanisms point to specific policy choices rather than monetary system change. The shift to stock options in the 1990s created a feedback loop: rising markets increased CEO pay, which went into stocks, pushing markets higher.
Causal Factors
Stock option & equity compensation
35%Stock options went from 0% to ~80% of CEO pay since the 1980s. When markets rise, CEO pay explodes. Realized CEO compensation soared 1,085% from 1978 to 2023.
Tax policy incentivizing stock-based pay
25%Section 162(m) of the tax code (1993) capped salary deductions at $1M but exempted 'performance-based' stock pay, creating a massive incentive for option-heavy packages.
Corporate governance weaknesses
20%CEO pay is set by boards of directors who are often chosen by the CEO. Peer benchmarking creates a ratchet effect: every board wants to pay 'above average.'
Financialization of the economy
10%The financial sector's share of corporate profits grew from 10% to 30%, and finance-sector CEOs receive the highest compensation packages.
Declining worker bargaining power
10%Worker wages at the median stagnated while CEO pay soared. Union decline, globalization, and labor market deregulation compressed wages at the bottom.
Data Source
Key Events
Revenue Act
Creates 401(k)s and shifts tax incentives, beginning era of stock-based pay
Section 162(m)
Tax code caps deductible executive salary at $1M, but exempts stock options — accelerating option-based pay
Dot-com peak
Stock option exercises push CEO pay to all-time high relative to workers
Dodd-Frank
Requires public companies to disclose CEO-to-median-worker pay ratio
Post-COVID surge
Stock market recovery pushes realized CEO compensation to near-record levels