Entrepreneurs

CEOs Make 1,322 Percent More Now Than in 1978. This Is Why It’s Hurting Your Company.

According to the Economic Policy Institute, CEOs now earn 320 times as much as a typical worker. In the 1970s, that number was only in the 30s.

This pay gap is troubling for both employees and CEOs. For employees, unable to keep up with the rising cost of goods, salaries may soon be unable to cover the cost of day-to-day necessities. For CEOs, the same consumers they relied on for growth may be hard to find in years to come–precisely because wages are slowly becoming “unlivable.”

What’s really behind this trend? And how do we fix it?

AJ Hess, a reporter with CNBC, dug into these numbers with EPI fellow Lawrence Mishel recently and they uncovered a few reasons for the widening pay gap: globalization (finding cheaper labor abroad), high unemployment (creating lower standards for employees who just need work), erosion of unions (removing worker protections), low labor standards (lowering expectations for employees), an increase in noncompetes (limiting employees’ ability to find new work), and domestic outsourcing (filling employment gaps with temporary, contract hires).

You’ll notice that none of these are technology. People at the top are most often the cause for the gap, not robots replacing humans in the workforce.

To fix it, Mishel proposed two solutions: Public shaming of greedy CEOs and company boards that endorse ever-higher C-level compensation, and policies that effectively protect worker rights.

But there’s one approach that Mishel and Hess didn’t discuss that’s just as critical: The training of a new generation of CEOs.

Training is perhaps the wrong word, but it’s apt: We, as a society, need to change the narrative around CEOs. We need to expect more responsible behavior from businesses from the day they launch. How? By engaging with early-stage CEOs before they are out of reach. And, importantly, by CEOs setting an example for their peers.

Supporting local and independent is the (IMO, correct) trend these days. As a consumer, find the business owners and CEOs who are passionate about doing good work in their company and in their community. Tell them what matters to you and why you choose to spend your money with them instead of a business behemoth. Importantly, tell them you care about how they treat their employees–that it’s a reflection not just of them, but of the community.

But up-and-coming CEOs don’t have to wait for consumer engagement to set the right course. Gen Z is already making their needs known: According to recent studies, as much as 83 percent of the youngest generation wants the companies they buy from to align with their values. What are those values? Less money and far more ethics and equality, pay included. Start now, avoid the gap before it widens into a chasm, and avoid vitriol when your company has gone public. In other words, build a culture of pay parity that is both transparent and based on accessible guidelines.

Those CEOs who follow the equitable pay curve will not only enjoy generous judgment in the court of public opinion, but will also draw loyal customers. Case in point: Dan Price of Gravity Payments (who I profiled a short while back in this article).

Will shaming current CEOs help? Per Mishel, it might. But education of up-and-coming CEOs plants roots for future growth, whereas shaming tears down the structures on which we have come to depend. If earnestly addressed, the former can cut the pay gap over a generation. The latter will chip at an ever-growing iceberg liable to sink the consumer ship.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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