Gap Widening Between the Rich and Super Rich

Income inequality between the top 1 percent and 0.1 percent has outpaced that between the rich and everyone else. Compensation for CEOs is a major reason for that.

Americans know that economic inequality – the gap between the rich and everyone else – has grown significantly. But income inequality among the wealthy is growing even faster.

The New York Times reports that the income gap between the top 1 percent and top 0.1 percent has expanded even more than the divide between the 99 percent and the 1 percent. Economists have coined the phenomenon “fractal inequality.” The Times says:

It is not just that the rich have pulled away from the average American. It is that the richer you are, the more you have pulled away.

A report from the Economic Policy Institute says, “The average annual earnings of the top 1 percent of wage earners grew 156 percent from 1979 to 2007; for the top 0.1 percent they grew 362 percent.”

To put this into perspective, in 2012, the average household income was distributed as follows, according to the Times:

  • $30,997 – bottom 90 percent.
  • $1.26 million – top 1 percent.
  • $6.37 million – top 0.1 percent.

Part of what’s driving this is CEO pay. “Executives, and workers in finance, accounted for 58 percent of the expansion of income for the top 1 percent and 67 percent of the increase in income for the top 0.1 percent from 1979 to 2005,” the institute report says.

From 1978 to 2011, compensation for chief executives skyrocketed 725 percent, while workers experienced a 5.7 percent increase, the Times reports. The ratio of chief executive to worker compensation has ballooned from 18-to-1 in 1965 to 209-to-1. The Times adds:

Not all of that increased compensation for managers is because of improving performance, either. The growth of earnings for executives has outpaced growth in the stock market or in corporate earnings, by a wide margin.

Several explanations have been offered for that — boards that are very CEO-friendly, and the “peer benchmarking” system of determining CEO pay.

James Surowiecki of The New Yorker explains:

They look at the CEO salaries at peer-group firms, and then peg their CEO’s pay to the 50th, 75th, or 90th percentile of the peer group — never lower. This leads to the so-called Lake Wobegon effect: Every CEO gets treated as above average. With all the other companies following the same process, salaries ratchet inexorably higher.

Thanks to new rules, we know more than we ever did about CEO pay. But now the Securities and Exchange Commission is considering a rule to require public companies to disclose the ratio between the CEO’s compensation and the median compensation of all other employees.

What do you think? Would that help control the growth of CEO pay? Share your comments below or on our Facebook page.

Karen Datko contributed to this post. 

Stacy Johnson

It's not the usual blah, blah, blah

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  • cuja1

    The gap between the rich & super rich will be the reason for another Wall Street Crash like was down in 1929. The wealthier than were such as Prescott Bush, DuPonts, Morgan, Chase, as a few walked off with the money. Interesting that the same names came up in 2007.

  • voice_reason

    Like the rich will care about anyone other than themselves? All this means is that the rich managers will take more from those below them and the bottom 99% will fall further behind

  • Geoff Powell

    I don’t have a huge issue with CEO’s making huge salaries, if it’s under the premise that if they don’t perform they get terminated with no severance. Unfortunately, when they don’t perform, they may be terminated but usually with a tidy little nest egg to boot. Not much of a financial incentive to do a good job if you ask me.

    However, if you read the statistics from the study, they didn’t look at anything beyond 2007 and the big crash happened in what 2008? I wonder if that was one of the reasons for the crash?

  • bigpinch

    What I don’t like about articles like this is the fomentation of envy. Get real about CEO pay. CEO pay is under the control of the stock holders in the several companies. If the stockholders are O.K. with the compensation packages of the CEO’s, what the hell business is it of people who don’t own stock in the company? Get a life!
    This obsession with “The Rich” and what they do is an extension of celebrity worship and a fascination with the affairs of “The Royals” and “The Kennedys” which occupies the attention of low-information voters who think that the Government ought to be able to dictate what people earn and how much “stuff” they can buy. The problem is in your heads, dear readers. Quit watching the TV, educate yourself, and pay attention to what you’re doing.

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