Video: CEO VS Average Joe

By Mary Thompson Reporter
CNBC
updated 8/29/2007 1:53:37 PM ET 2007-08-29T17:53:37

While the cost of executive pay is measured in dollars and cents, a new study out claims there are other ways society is paying the high price for those skyrocketing salaries.

"Staggering" is how United for A Fair Economy, a liberal non-profit which supports efforts to create economic equality, describes the social costs of executive pay in its 14th CEO compensation survey.

364 years. That’s how long it would take an average U.S. worker to earn the average $10.8 million paid to a Fortune 500 CEO last year, according to UFE's report “Executive Excess 2007."

UFE claims that these high salaries come at a cost to other professions.

“It discourages people with leadership talent from pursuing positions in the not-for-profit world, which is less lucrative,” said Sarah Anderson of UFE. “So it’s a drain of talent away from jobs that are quite important to our society.”

Comparing the average pay of the 20 top CEOs to 20 of the best-paid leaders in other professions, the report finds those CEOs earned an average of $36.4 million, 38 times more than non-profit leaders, 204 times more than generals in the military, and three times more than the best paid CEOs in Europe.

Along with siphoning talent, UFE claims the lure of high pay may compromise some in Congress who choose to support legislation that’s benefiting companies, not constituents, if they're angling for a future job in the private sector.

Lastly, it says that the high pay affects average workers by hurting morale and productivity. Hard things to quantify, though academic research suggests that paying the boss a lot discourages those right below them.

“We found that even if the individuals themselves were overpaid relative to the market, if the CEO was more overpaid, then they were more likely to leave the organization the following year,” said Tim Pollock, a business professor at the Pennsylvania State University.

Maybe they're joining the world of hedge funds and private equity, where the study says best paid managers on average made over $650 million last year, more than 22,000 times the over $29,500 made by the average American worker.

How to narrow this gap? UFE proposes six changes to the tax code, including capping deferred executive pay and increasing the top marginal rate on high incomes.

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