In 1965, chief executives in the top 350 U.S. firms took home roughly twenty times the pay of an “average worker.” By 1980, CEOs in the same top bracket of firms took home thirty times the annual salary of an average worker, and by 2015, that number had surged to just shy of three hundred times. Adjusted for inflation, most U.S. workers gained a modest 11.7 percent rise in real wages between 1978 and 2016, while CEOs typically enjoyed a 937 percent increase in remuneration.
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In 1987, 28.8 percent of US employees worked in companies with more than five thousand employees. Thirty years later, the percentage was 33.8. Today, the number of employees working in companies with more than ten thousand employees exceeds the number who work in businesses with fifty or fewer employees.
While CEOs often justify megamergers by promising increased operating efficiencies, research suggests that the real benefits are less about economies of scale and more about oligopolistic advantage. A comprehensive study of the US economy by Jan De Loecker, Jan Eeckhout, and Gabriel Unger found that “markups,” a proxy for market power that measures firm-level difference between prices and marginal costs, have increased sharply over the last several decades. In 1980, the average firm charged 21 percent over marginal cost; by 2016, the average markup had grown to 61 percent. This trend has been observed not only in the United States, but in other developed economies as well.
Though mere mortals, CEOs are often paid as if they were omniscient. At present, the average CEO compensation in America’s 350 largest companies is $17.2 million a year, or 278 times the pay of a typical frontline employee. It’s not clear those millions buy much in the way of vision. Repeated studies have shown that the correlation between CEO pay and relative share performance is negligible or slightly negative. No amount of money can transform an executive into Iron Man or Wonder Woman.
On June 15, 1971, The Washington Post Company went public at $6.50 per share (adjusted for a subsequent 4-for-1 split). When Kay stepped down as CEO on May 9, 1991, the price was $222, a gain of 3,315 percent. During the same period the Dow advanced from 907 to 2,971, an increase of 227 percent.” Now that I have studied Graham’s life and leadership, my own assessment is that she stands as one of the absolute best examples of a leader who took a company from good to great, with some of the gutsiest business leadership decisions of all time.
Our research shows that from 2000 to 2020, approximately 77 percent of CEOs were appointed from one of these positions: chief operating officer (COO), which is frequently combined with the president’s title, accounted for the lion’s share of appointments, at 50 percent; divisional chief executive officer (DCEO) came in at 19 percent; and chief financial officer (CFO) accounted for 8 percent of appointments. Another 13 percent of appointments were of experienced CEOs. Leapfrog appointments accounted for only about 5 percent, with the remaining percentage including appointments from comparatively new C-suite roles, most commonly chief technology officer, which unsurprisingly were concentrated in technology firms.