Order Code 96-187 E
Updated April 13, 2004
CRS Report for Congress
Received through the CRS Web
A Comparison of the Pay of Top Executives
and Other Workers
Linda Levine
Specialist in Labor Economics
Domestic Social Policy Division
Summary
The level of top executive compensation has been of interest to policymakers,
shareholders, and employees for several different reasons over the years. Most recently,
concern has centered on those corporations whose senior executives have enjoyed
substantial pay packages while they have misstated their firms’ financial condition. A
little earlier in the current decade, it focused on the compensation of airline executives
seeking federal assistance and/or concessions from employees. While the amount of
executive salaries, bonuses, and long-term incentives sometimes is looked at in
isolation, a comparison often is made between the pay package of senior executives and
of employees in general to demonstrate the alleged unfairness of the corporate wage
structure. The focus of this report, which will be updated annually, is on the size of
average executive and worker pay over the years.
Background
Both worker and shareholder interests coalesced in the 1980s to bring the issue of
top executive pay to the attention of policymakers. From the worker perspective, efforts
at curbing labor costs to improve competitiveness were not shared by corporate heads
whose large pay raises were thought by some to have contributed to the growth in wage
inequality during that period. From the shareholder viewpoint, their interests and those
of executives would be more closely aligned by linking raises to company performance
through the use of stock-related incentives.
The stock-based, pay-for-performance share of executive compensation did indeed
increase over time. However, concern arose in the 1990s about rewarding mediocre
performance in a booming stock market; executives’ attention becoming too focused on
near-term movements in stock prices rather than on other performance measures over a
longer time horizon; and diluting per-share earnings due to the increased issuance of stock
options.
Congressional Research Service ˜ The Library of Congress

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Most recently, interest has turned to the level of executive compensation at
corporations that misstated their financial condition (e.g., Enron). The alleged actions of
senior executives at these firms not only harmed shareholders in general but also
employees whose pensions largely consisted of stock in their bankrupt companies.
Somewhat earlier in the current decade, concern also focused on the compensation of
executives at airlines that sought federal assistance and/or concessions from their
employees in order to avoid bankruptcy.
Three arguments typically are made on behalf of large executive pay packages: first,
their size is commensurate with the job’s weighty responsibilities; second, they are
necessary to prevent executives from leaving for greener pastures; and third, the
comparatively small pool of qualified candidates elevates their compensation levels. It
is asserted in response that compensation in the top executive labor market is not set by
supply-demand conditions, but rather, is administered by corporate directors (many of
whom are current or former senior executives) who unnecessarily limit the number of
candidates they are willing to consider for high level positions.
The Pay of Top Executives and of Other Workers
The magnitude of the gap between top executive and worker pay depends, in part,
on how executive compensation is measured and on the makeup of the comparison
employee group. Compensation differs if it is reported as a median or average because
the latter may be raised by a few large observations. The direct relationship between firm
size and executive pay means that a large sample of firms, which is more likely to include
smaller firms, typically produces a lower pay estimate than a small sample. Results also
vary based on who is surveyed (e.g., chief executive officers or presidents), on what is
counted (e.g., whether housing allowances, company cars, and club memberships are
included), and on how a value is determined (e.g., the realized value of stock options in
the year they are exercised or their estimated value in the year they are granted).
Table 1 presents data on the average compensation of the highest paid executives
at 300-400 of the nation’s largest publicly held corporations, as reported by Business
Week; and on the average earnings of non-management employees of firms in the private
nonfarm sector of the economy, as reported by the establishment survey of the U.S.
Bureau of Labor Statistics.
The second half of the 1990s was characterized by very substantial absolute and
percentage gains in the average compensation of senior executives at large publicly held
corporations. The growth came much more from stock-based incentives rather than from
the salary-and-bonus component of pay packages. With the average earnings of
production and non-supervisory employees rising to a much smaller extent, the
compensation of these executives climbed to over 500 times the paychecks of most other
workers by 1999.
The course of average executive compensation has been mixed thus far in the current
decade. Average salary, bonus, and long-term incentives initially declined at an
accelerating pace between 2000 and 2002. This pattern likely reflects the poor
performance of the stock market at the time and the reportedly closer scrutiny given pay-

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setting by some corporate boards of directors. By 2002, top executive compensation had
fallen to a level last seen five years earlier: $7.4 million in 1997. The latest year for
which data are available, 2003, finds the average compensation of executives in Business
Week’s sample to have reversed direction — rising to $8.1 million, or 301 times the
wages of most workers in the private nonfarm sector. In 2003, the average compensation
of senior executives increased at more than four times the rate of production and non-
supervisory workers (9.5% and 2.2%, respectively). Part of the divergence in earnings
gains probably is related to the improved performance of the stock market, which made
it worthwhile for executives to exercise their stock options.
Some have speculated that the double-digit rates of compensation increases
consistently posted by senior executives in the mid-to-late 1990s are unlikely to return.
Shareholders presumably will not soon forget the extravagance and wrong-doing of some
top executives. Corporate directors allegedly are more closely overseeing the
compensation packages awarded to senior executives so that they must surpass higher
performance thresholds in order to receive stock options. And, options may be giving
way to restricted stock grants. Less sanguine observers note, however, that those who set
executive pay have been known to be quite creative. For many years now, such “perks”
as access to corporate jets for personal use and contributions to home mortgages among
other things, have been a growing part of executive compensation.
Table 1. Average Top Executive and Worker Pay
Ratio of
worker to
Executive (Exec.) pay
executive pay
Percent change (%)
Salary
Total
and bonus
compensa-
Worker
Exec.
Exec.
Worker
Year
(S&B)
tion (TC)
pay
S&B
TC
S&B
TC
pay
2003
n.a.
$8,100,000
$26,903
—
1:301
—
9.5
2.2
2002
n.a.
$7,400,000
26,316
—
1:281
—
-32.7
2.6
2001
n.a.
11,000,000
25,646
—
1:429
—
-16.0
2.7
2000
n.a.
13,100,000
24,981
—
1:524
—
-5.6
3.9
1999
$2,300,000
12,400,000
24,049
1:96
1:516
9.5
16.9
3.2
1998
2,100,000
10,600,000
23,298
1:90
1:455
-4.5
35.9
3.9
1997
2,200,000
7,800,000
22,425
1:98
1:348
-4.3
34.9
4.5
1996
2,300,000
5,781,300
21,462
1:107
1:269
39.1
54.3
3.3
1995
1,653,760
3,746,392
20,776
1:80
1:180
18.2
30.0
2.3
1994
1,399,698
2,880,975
20,318
1:69
1:142
9.8
-25.0
3.3
1993
1,274,893
3,841,273
19,677
1:65
1:195
15.4
0.0
2.9
1992
1,104,769 3,842,247
19,127
1:58
1:201
-1.8
55.8
2.8
1991
1,124,770
2,466,292
18,619
1:60
1:132
7.4
26.3
2.5
1990
1,214,090
1,952,806
18,163
1:67
1:108
3.5
5.2
3.3
1989
1,172,533
1,856,697
17,581
1:67
1:106
3.9
-8.3
3.6

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Ratio of
worker to
Executive (Exec.) pay
executive pay
Percent change (%)
Salary
Total
and bonus
compensa-
Worker
Exec.
Exec.
Worker
Year
(S&B)
tion (TC)
pay
S&B
TC
S&B
TC
pay
1988
1,128,854
2,025,485
16,967
1:67
1:119
16.9
12.5
3.0
1987
965,617
1,800,000
16,474
1:59
1:109
16.4
50.0
2.4
1986
829,887
1,200,000
16,095
1:52
1:75
22.2
0.0
1.6
1985
679,000
1,200,000
15,843
1:43
1:76
4.0
9.1
2.4
1984
653,000
1,100,000
15,478
1:42
1:71
—
76.0
23.6
1980
n.a.
624,996
12,520
—
1:50
—
13.9
91.4
1970
n.a.
548,787
6,542
—
1:84
—
—
—
Source: Business Week, various issues, and U.S. Bureau of Labor Statistics’ (BLS) establishment survey
data.
Note: The Business Week survey covers the highest paid executives at 300-400 of the nation’s largest
publicly held corporations. The BLS data relate to average weekly earnings of production or
nonsupervisory employees on private nonfarm payrolls multiplied by 52 weeks.
n.a. = not available.

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