worker pay gap has narrowed to 268:1, but that won't last: Ross Kerber
The opinions expressed here are those of the author, a columnist for Reuters.
By Ross Kerber
Aug 14 (Reuters) -The gap between the pay of CEOs and their workers drew a notch narrower, a recent report showed, but don't hold your breath for the trend to continue as labor markets soften.
The AFL-CIO, the largest federation of American labor unions, said last week the average S&P 500 .SPX CEO made $17.7 million in total compensation in 2023. For companies surveyed, the ratio of CEO pay to the median employee's pay averaged 268:1, the report found.
That's lower than in 2022 when the ratio was 272:1, or in 2021 when it stood at 324:1. You can read their full report here.
Everything will be fine right? Not so fast, based on my talks with some experts. CEO pay is often removed from long-term corporate performance, but labor economists pointed out that the pace of workers' wage growth has slowed and tied to broader economic questions.
"The labor market isn't as hot as it was two or three years ago," said Justin Bloesch, a Cornell University economist. "Firms are staffed up and don't need to hire as aggressively," he said.
Bloesch referred me to data from the Federal Reserve Bank of St. Louis showing how as of July the average hourly earnings of U.S. production and nonsupervisory employees stood at $30.14, having risen steadily from where they stood in January 2020, at $23.91, just before the COVID-19 pandemic.
However the rate of increase has fallen over most of the same period. The same workers made 3.8% more last month than they had a year earlier, down from the 7% increase they had enjoyed in March 2022.
It's not an exact comparison since the AFL-CIO report compares the pay of S&P 500 CEOs to workers at their own companies, whereas the Fed data covers employees engaged in fabricating and assembling stuff, office and clerical workers, teachers, musicians and other service providers. Basically everybody who is not an executive or manager.
On either comparison though few expect a massive labor-market strengthening soon. The U.S. unemployment rate jumped to 4.3% in July, near a three-year high and the fourth straight monthly increase, though a more recent drop in jobless claims calmed marked fears.
Boston College professor Brian Bethune said the decline in wage growth relates to moderating demand for U.S. goods and services, trends he expects to continue with the rising real interest rates seen so far this year. "That is like slowly closing a vise on the economy," he said.
Meanwhile, compensation for CEOs has continued to rise. Since 2016, on average those in the S&P 500 have gotten raises every year except in 2022, according to the AFL-CIO's study.
"We expect that CEO-to-worker pay ratios will increase if CEOs continue to prioritize corporate profits and their own compensation over the workers who make those profits possible, as years of Executive Paywatch data have shown," said Brandon Rees, the AFL-CIO official who oversees the reports. The federation says it represents 12.5 million workers.
For what it's worth, shareholders seem to be okay with the CEO pay trends. Among S&P 500 companies as of mid-July the average support for advisory "Say on Pay" resolutions was about 90%.
Just for some context: among companies in the FTSE 100,.FTSE median CEO pay rose to 4.19 million pounds in 2023, 120 times that of the median full-time British worker, a separate report showed. The ratio was 124:1 in the previous year.
(This column is part of the Reuters Sustainable Finance newsletter. To receive the newsletter every Wednesday you can sign up here.)
Workers' wage gains decrease https://reut.rs/46GP7Kz
Reporting by Ross Kerber; Editing by David Gregorio
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