MIND THE GAP

People worldwide think CEOs should make a tiny fraction of what they do

Executive pay has gotten incredibly high, to the point where the chairman of the America’s largest grocery chain admits things have gotten out of hand. In the US, the average CEO makes an estimated 354 times as much an average unskilled worker ($12,259,894 vs. $34,645)

People all around the world are broadly unaware of how wide the pay gap is, and they are almost universally of the opinion that CEOs should be paid much, much less, according to a new study (pdf) from Harvard Business School. According to the survey data, people in the US think that the ideal pay gap between an unskilled worker and a CEO is 6.9—or 50 times less than the real gap.

Pay underestimation and support for a much lower ratio cut across political beliefs and socioeconomic status.

Using data from that paper, a Harvard Business Review blog post puts together an interesting counter-factual calculation that highlights the difference between people’s ideals and reality.

How much would the average employee make if the unskilled worker/CEO pay ratio was where they’d like it to be?

The calculation keeps CEO pay the same, and adjusts average worker pay to match the country’s ideal ratio:

Average-salary-at-ideal-CEO-worker-pay-ratio-Estimated-worker-salary_chartbuilder

The comparison is far from real, and any policy remedies are more likely to focus on bringing CEO pay down than boosting workers’ wages to that extent. But it’s valuable to highlight the size of the gap between expectations and real pay.

It is shaped, to a degree, by the ideal ratio itself. Most countries think CEOs should make between four and six times their average worker. Scandinavian countries have a more egalitarian bent, generally suggesting that CEOs get merely double the salary of workers.

Another chart from the blog post highlights both the degree to which people underestimate pay, and how much they’d like to see it decline:

actualestimated (1)_colorcorrected
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