Is your CEO worth $6 million?

• Author: Penrod, Emma

Utah enjoys some of the nation's highest levels of economic equity. But the gap is widening.

According to public filings, Pluralsight's CEO Aaron Skonnard took home nearly $6.5 million in total compensation in 2019. Extra Space Storage's CEO took home $6.2 million. Nu Skin's CEO took home just over $4.5 million.

Since 1978, CEO compensation has grown over 1,000 percent, outstripping stock market gains and vastly exceeding wage growth overall, with the average worker's salary increasing just 12 percent in the same period. As a result, the one percent of the wealthiest Americans now take home 21 percent of the entire nation's earnings, according to the Economic Policy Institute, and the demand for low-to-mid-wage talent has increased.

WHY CEOS HAVE BEEN HISTORICALLY OVERPAID

There are varying theories on why CEOs have historically been compensated so handsomely, but Lawrence Mishel, an economist with EPI, doesn't believe it's accidental. "It's sometimes called wage stagnation, but we refer to it as wage suppression, because it's not like something that just happened," he says. "It's the conscious result of policy decisions sought by wealthy people, corporations, and businesses."

Ethan Rouen, an assistant professor of business administration at Harvard Business School, says this cycle begins with the way most firms decide what to pay their CEOs and other executives. A CEO's salary is typically determined by a committee, which reviews the pay of CEOs at similar firms and then, theoretically, uses the CEO's performance to determine the salary they deserve compared to the standard set by their peers.

The trouble with this system is that nobody wants to admit when their CEO is underperforming, Rouen says, and so most companies elect to pay their CEOs above the average suggested by the peer group. This results in a keeping-up-with-the-joneses dynamic that ensures executives enjoy ever-larger compensation packages, regardless of whether the company as a whole has done well. "All the children are above average--that's the problem with CEO pay," Rouen says. "Nobody wants to admit they have a below-average CEO."

Over time, as this dynamic has enabled the nation's top earners to amass an increasingly large proportion of the nation's wealth, the upper class has created structures and enacted policies that shore up their earnings, Mishel says. Cutting taxes for the wealthy is just one example. "In the 1960s, Fortune magazine asked why you would pay your CEO $2 million rather than $1 million when the second million mostly goes to the treasury," he says. "These days, the second million doesn't go to the treasury."

But the problem goes beyond tax policy, Mishel says. For the past four decades, the wealthiest Americans have fought minimum wage increases, normalized a host of practices such as non-compete agreements, and forced arbitration that benefit executives at the expense of rank-and-file workers. They've also sought to erode the social safety net, he says, which forces Americans to work for low wages rather than seek better opportunities.

"There are a whole...