Polls show that most Americans are outraged by sky- high CEO pay. And why shouldn’t they be? A generation ago, top CEOs made 30 to 40 times the pay of average workers. Last year, CEO pay outpaced average worker pay by 344 times.
In effect, the gap between worker and executive pay has multiplied an amazing tenfold since the early 1980s.
How could that be? Are executives working 10 times harder than they did three decades ago? Are they 10 times smarter? Of course not. Not one iota of evidence supports that notion.
So what’s changed? Today’s executives may not be smarter or harder-working. But they do wield more power. Plenty of it.
The reason: 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.
Government regulations, for instance, used to discourage shady corporate practices that pumped up profits at consumer expense. Corporate lobbyists have had these regulations erased, over the last 30 years, in industry after industry.
Something else has changed, too. We no longer have a vital trade union presence in the U.S. economy.
Back on the 1950s, more than one-third of American private-sector workers belonged to unions. Bargaining between these workers and their employers helped raise wages for all workers and, at the same time, kept executive rewards reasonable.
Today, only 7.4 percent of private-sector employees belong to unions. This absence of a union check on executive power leaves CEOs free to pocket rewards at levels that would have seemed recklessly greedy only a generation ago.
Recent academic research has demonstrated the difference that a union presence can make on executive pay. One survey, published in the Journal of Labor Research, found that CEOs at nonunion companies take home nearly 20 percent more than executives in unionized firms. Workers in union companies, meanwhile, make $200 more a week than their nonunion counterparts.
CEO-worker pay divides run particularly wide in the service in dustries, where only a tiny percentage of workers belong to unions. In food services, workers average only $18,877 a year. The CEOs of the top 10 firms in this industry — we’re talking outfits like McDonald’s and YUM Brands, the owner of KFC and Pizza Hut — took home 354 times that much in 2007.
By contrast, in many manufacturing industries, CEO-worker pay gaps run half that wide. Workers in these industries have, over the years, used union leverage to bargain for decent compensation. Unfortunately, “free trade” agreements and other factors are slashing employment in these traditional union strongholds.
If these trends continue, the enormous divide between worker and executive pay will only grow wider — and make a mockery of the values of economic fair play we’re supposed to celebrate every Labor Day. But these trends don’t have to continue. We can stop our national slide to a totally top-heavy economy by restoring to workers what they had back in the middle of the 20th century: the right to organize a union.
One bill pending before Congress, the Employee Free Choice Act, could start this restoration process. If lawmakers enacted this legislation, workers would be much better able to exercise their lawful right to organize and bargain collectively.
This November’s election will likely determine the Employee Free Choice Act’s future.
CEOs, no doubt, will be watching closely on election night.