Executive Pay Shoots Up While Employees' Fall Behind Inflation

The average pay for a chief executive last year rose at ten times the rate of the average wage-earners, which failed to keep up with inflation.

A survey of 200 large companies, conducted by Pearl Meyer & Partners, showed that compensation for CEOs jumped 27 percent last year to an average of $11.3 million. The pay of the average wage-earner increased by a scant 2.9 percent according to Labor Department statistics.

Compensation for CEOs is racing ahead, in large part, because of huge gains from stock options during the 1990s bull market. That trend spurred the recruitment of high-profile CEOs. Employees, meanwhile, are struggling to keep up with as low-cost labor from China and India drive down the wages and benefits of the American workforce.

The top executive's salary at a big company spiraled up 170 times the average employee's in 2004.

"We need to bring some reality back," said John C. Bogle, Sr., the founder and former chairman of the Vanguard Group, a mutual fund company and a critic of executive compensation practices. "That is something that in the long run is not good for society. We have the haves and have-nots."

The vast divide in rising incomes is a trend that began in the 1980s. From the mid-1940s through the 1970s, the pay of both groups grew at about the same rate of 1.3%. But starting in the 1980s, the rise in CEOs' paychecks began to accelerate.

During that time, corporations delivered a growth of 6% a year, slightly less than the growth of the entire economy, as measured by gross domestic product.

4-26