CEO pay—how much is too much?

The American Federation of Labor (AFL-CIO) has compiled a list of CEO compensation in 19 developed countries and the results are of considerable interest to Canadians. It turns out that the ratio of our CEO's pay to that of the average worker is second highest of the group, behind only—no surprise—the U.S.A. The average Canadian CEO makes over two hundred times the pay of the average Canadian worker (the average American CEO makes 354 times as much). The average Canadian CEO pulls in $8,704,118 while the average worker makes $42,253. The CEO pay package includes salary, bonuses, stock awards and other perks.

In Norway, with workers making about the same as Canadians, the ratio is only 58 to one. In Germany, where workers also make about the same as Canadians, the ratio is 147 to one, high by European standards but substantially less than North America.

One wonders what we get for our money. Norway has a highly successful economy, yet they only need to pay their top execs a third of what ours get. Germany is arguably the most successful industrial nation in the world, its companies superbly managed, and their CEOs receive only two-thirds the compensation of our overpaid lot. The answer I suppose lies in our proximity to the U.S., the most inequitable country in the developed world, a very bad but highly influential example. In 1965 the ratio of CEO to average employee in the U.S. was only 20 to one. Are CEOs really seventeen times better than they were back then?

A large part of the reason the gap is tolerated is that people grossly underestimate what CEOs receive. For example, a recent study, How Much (More) Should CEOs Make? by Sorapop Kiatpongsan and Michael I. Norton showed that Americans believe the ratio is about 30 to one but should be only about seven to one when in fact it is 354 to one. This gross discrepancy between what people think is fair, what they believe executive compensation to be, and what it actually is, is universal. If people around the world ever discover the reality about what CEOs are making, we may see an equally universal demand for a maximum wage.