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By Sean Gorman October 19, 2014

Jim Webb says CEOs make 350 times more than workers

Former U.S. Sen. Jim Webb, who’s mulling a presidential run, says there’s a lack of "economic fairness" for working families in the United States.

During a recent address to the National Press Club in Washington, Webb lamented that compensation to top corporate executives has been soaring while workers’ pay has remained flat.

"When I graduated from the Naval Academy (in 1968), the average corporate CEO made 20 times the average worker’s pay. Today that multiple is about 350," said Webb, a Democrat.

Let’s see whether Webb’s figures on the growth in pay disparity are correct.

1968 pay

Amy Hogan, Webb’s daughter and occasional spokesperson, sent us an email providing with some sourcing for her father’s claim. But it didn’t explain how Webb came up with the CEO-to-worker pay ratio for 1968.

Our search failed to turn up data for 1968, but we found a couple sources that listed ratios from around that year.

In 1965, according to the Economic Policy Institute in Washington, the average CEO made about 20 times a typical worker’s pay. Average earnings for a CEO were $126,000, while workers made $5,947. Adjusted to today’s dollars, the executive made $819,000 and the worker made $39,500.

In 1970 the ratio was 30-to-1, according to research by Kevin Murphy, a professor of finance and business economics at the University of Southern California. The top executives averaged $196,310 in earnings, while workers made $6,540. Adjusted to today, the CEO made about $1.2 million and the worker was paid $40,100.

Current pay

Hogan told us Webb’s 350-to-one claim was based on an article in The Wall Street Journal last year that cited statistics on executive pay compiled by the AFL-CIO. The labor union found that in 2012, the average CEO made 354 times more than the average worker.

The AFL-CIO has updated statistics for 2013. Based on data from 350 corporations listed in Standard & Poor’s 500 Index, the union said CEOs received total annual compensation averaging $11.7 million. Average pay for production and nonsupervisory workers was $35,239. By this measure, CEOs made 331 times more than the average worker.

The AFL-CIO does not have the final word on this subject, however. Its finding is on the high side of a number of estimates published by different organizations on CEO-to-worker pay ratios. There’s no standard formula for computing the figure and the results vary based on which corporations -- and how many of them -- are used in a study. The definitions of CEO compensation differ. For example, some researchers count the value of all stock options made available to a CEO during a year, while others only count the value of options the executive cashed.

Similarly, researchers use different definitions to define workers and compute their compensation. In general, workers are considered to be non-supervisory personnel. Because corporations aren’t required to reveal compensation figures for their entire staff, researchers cull figures for worker pay from broad, national data.

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The Economic Policy Institute concluded the pay ratio for last year was 296-to-1. It said average CEO compensation at 350 large corporations was $15.2 million and pegged workers’ average pay at $55,800.

Here are two other CEO-to-worker pay ratios we came across:

  • Bloomberg: 204-to-1 in 2011 and 2012

  • University of Southern California: 307-to-1 or 420-to-1, depending on how stock options are counted.

While the studies produce different numbers, they all point to eye-popping differences in earnings between CEOs and workers. Researchers say CEO compensation has soared in recent decades largely because generous stock options have been weaved into their pay packages.

Webb says income disparity should be eased by overhauling the tax code. He favors eliminating income tax breaks that favor the wealthy and raising levies on capital gains and dividends.

Several executive pay experts told us Webb’s figures were credible based on research they had seen. But they cautioned against reading too much into CEO-to-worker ratios saying they don’t really shed much light on what type of compensation CEOs should ultimately receive.

"I think it’s dangerous to kind of collapse the whole debate into that ratio," said David Larcker, a professor of accounting and corporate governance at Stanford University. "You want to focus on things like how much value are people (CEOs) creating and what share of that value should they get and what would be equitable across society, and those are very, very hard questions to answer."

We should finally note that better data on CEO-to-worker pay ratios may soon be available. The 2010 Dodd-Frank financial reform bill requires publicly traded companies to disclose their ratios quarterly. The U.S. Securities and Exchange Commission is developing guidelines on how the figures should be computed.

Our ruling

Webb said that in 1968 the average CEO earned 20 times more than a typical worker, and today, the ratio is about 350 to 1.

His numbers describing today’s ratio, while credible, are on the high side of research.

Webb relies on a study by the AFL-CIO. EPI puts the figure at 300-to-1. Last year, Bloomberg pegged the ratio at 204-to-1. The University of Southern California put the ratio at 307-to-1 or 420-to-1, depending on how stock options are defined.  

There’s no doubt about Webb’s main point: the gap between CEOs and workers has seismically expanded over the last half century. But there’s room to quibble over the numbers he uses.

So we rate his claim Mostly True.

Our Sources

Jim Webb’s comments at the National Press Club luncheon, Sept. 23, 2014 (Webb’s statement is at 27:30 into video.)

E-mail from Amy Hogan, spokeswoman for Jim Webb, Oct. 2, 2014.

Wall Street Journal, "Corporate Pay: One CEO = 354 workers," April 16, 2013.

Bloomberg, "Top CEO pay ratios," April 30, 2013.

Bloomberg, "CEO Pay 1,795-to-1 multiple of wages skirts U.S. law," April 30, 2013.

Economic Policy Institute, "CEO pay continues to rise as typical workers are paid less," June 12, 2014.

Economic Policy Institute, "CEO pay and the top 1 percent," May, 2, 2012.

Interview with David Larcker, professor of accounting and corporate governance at Stanford University, Oct. 1, 2014.

Interview with Kevin Murphy, a professor of finance and business economics at the Marshall School of Business at the University of Southern California, Oct. 1, 2014.

Emails from Kevin Murphy, Oct. 2 and Oct. 9, 2014.

Interview with Dan Siciliano, Faculty director of the Rock Center for Corporate Governance at Stanford University, Oct. 2, 2014.

Interview with Lawrence Mishel, president of the Economic Policy Institute, Oct. 9, 2014.

Email from Lawrence Mishel, Oct. 9, 2014.

PolitiFact, "Viral Facebook post on CEO-worker pay ratio has an obscure past," Oct. 10, 2011.

PolitiFact, "Bumper sticker says CEOs rake in the equivalent of a worker’s yearly pay in two days," Dec. 10, 2010.

AFL-CIO, Executive Paywatch report, accessed Oct. 2, 2014.

The Economist, "Executive pay," Feb. 4, 2014.

The Economist "Are they worth it?" May 8, 2012.

The Institute for Policy Studies, "Executive Excess 2014: The Obamacare prescription for bloated pay," Aug. 27, 2014.

Congressional Research Service, "The ‘pay ratio provision’ in the Dodd-Frank Act: Legislation to repeal it in the 113th Congress," Oct. 28, 2013., "About Jim," accessed Oct. 10, 2014.

Bureau of Labor Statistics, CPI Inflation Calculator, accessed Oc. 17, 2014.

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