Why Do CEOs Make So Much Money?

The world is bigger. So are the stock options.

In 1965, the typical CEO at one of America's 500 largest companies made 20x more than his typical worker. Today, she makes more than 200x. What happened? There is a practical answer and a philosophical answer.

First, CEOs are paid more because they're paid differently—with stock and stock options. The trend of paying executives with stock, which surged during the late 1980s and 1990s, has murky origins, but clear consequences: It has made the CEOs of America's biggest companies unfathomably rich, as you can see in the graph below. Theoretically, paying executives with stock aligns their compensation with their performance. Practically, it means they stand to make absurd sums of money when stocks rise.

But the deeper question is: How much is a good CEO of an enormous company worth? And that's just the problem. It's an extremely hard question to answer. Today's largest multinational corporations are bigger, more international, more complicated, and more besieged by global competition than they used to be. Maybe executives should be compensated more for a harder and more consequential job. 

But how much more is impossible to say. CBS CEO Les Moonves is notorious for pulling down pay packages worth more than $60 million. But his company had $14.1 billion in revenue last year. Relative to his median worker's pay, Moonves is a king. But if he's the best in the business, making less than half-a-percent of his company's total revenue doesn't seem so crazy. It's easy to say a $60 million take-home is wrong. It's harder say what number is right.

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

Why Principals Matter

Nadia Lopez didn't think anybody cared about her middle school. Then Humans of New York told her story to the Internet—and everything changed.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register with Disqus.

Please note that The Atlantic's account system is separate from our commenting system. To log in or register with The Atlantic, use the Sign In button at the top of every page.

blog comments powered by Disqus

Video

A History of Contraception

In the 16th century, men used linen condoms laced shut with ribbons.

Video

'A Music That Has No End'

In Spain, a flamenco guitarist hustles to make a modest living.

Video

What Fifty Shades Left Out

A straightforward guide to BDSM

More in Video

Just In