CEO Pay Shoots Up At Expense of Workers

By Josh Harkinson
Tue Apr. 5, 2011 3:00 PM PDT

Here's the latest on how much richer the rich have gotten: Last year, according to a USA Today analysis of corporate filings, median CEO pay jumped 27 percent. Compare this to the paltry 2.1 percent pay raise earned by the typical American worker.

Stock options have rewarded CEOs for layoffs instead of growth.

In general, CEOs did so much better than everyone else due to their generous stock options, which surged in concert with last year's bull market. Wall Street argues that there's nothing wrong with such incentive-based pay; it alignes the interests of corporate execs with their companies' shareholders.  But is that all that matters? UMass economics professor William Lazonick notes that a huge chunk of corporate profits last year came not from legitimate gains, but from downsizing:

The fact that CEOs’ pay is rising along with stock prices underscores the disconnect between pay and companies’ true underlying performance, Lazonick says. While companies in the S&P 500 boosted profit 47% last year, much of that was due to cost-cutting and layoffs, not from the creation of businesses and growth, Lazonick says. Revenue, a gauge of the money flowing into businesses for selling goods and services, grew at a much slower pace than profit — and ended the year up just 7%.

So in other words, a 7 percent pay hike for CEOs might have been fair; a 27 percent raise looks a lot more like profiting off the misery of the people who once worked for you.

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