Average American CEO Earns 354 Times Median Worker Pay… But That’s About to Change in Portland, Oregon

December 21st, 2016

Contributing writer for Wake Up World

“Americans actually live in Russia, although they think they live in Sweden. And they would like to live on a kibbutz.” ~ journalist Chrystia Freeland in “The Lottery Mentality”

Income inequality has become one of the hottest topics of 2016 as Americans become increasingly intolerant of obscene differences between industry top dogs and the average worker. And yet, a remarkable study back in 2011 by Michael Norton and Dan Ariely, illustrates just how out of touch Americans are in regards to the reality of income inequality in the United States.

“The average American believes that the richest fifth own 59% of the wealth and that the bottom 40% own 9%. The reality is strikingly different. The top 20% of US households own more than 84% of the wealth, and the bottom 40% combine for a paltry 0.3%. The Walton family [founders of Walmart], for example, has more wealth than 42% of American families combined.” [source]

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In truth, income inequality is on the rise — and not in small measure. No amount of rose-colored misperceptions will change this fact. What will help combat such an alarming trend are local communities banding together to even out the playing field. A case in point is Portland, Oregon, where the city council has just adopted “the nation’s first tax penalty for extreme CEO-worker pay gaps.”

The Uncomfortable Reality About Income Inequality

Even with all the political rhetoric about the need to address the growing chasm of income inequality in the U.S., several studies have shown Americans are more or less oblivious to the level of disparity. But it’s not just in the United States. A 2014 study that assessed perceptions of income inequality around the world, found that a majority vastly underestimated the gap between top earners and the working class. Norton and Sorapop Kiatpongsan asked 55,000 people from 40 countries how much they thought corporate CEOs and unskilled workers earned. Next they asked how much both should earn. The results were startling.

The average American estimated that the ratio between CEO and workers fell around 30-to-1, and that it should be 7-to-1, ideally.

“The reality? 354-to-1. Fifty years ago, it was 20-to-1. Again, the patterns were the same for all subgroups, regardless of age, education, political affiliation, or opinion on inequality and pay. “In sum,” the researchers concluded, “respondents underestimate actual pay gaps, and their ideal pay gaps are even further from reality than those underestimates,”’ writes Nicholas Fitz in Scientific American.

While Americans generally seem to be unaware of the extent of income inequality, we do suspect something is up — as seen by events like the Occupy movement, and President Obama classifying economic inequality as “the defining challenge of our time” — and most would agree that we’ve seen an ever widening gap between the rich and poor. However, very few view it as something to be concerned about, where just five percent of Americans feel income inequality is an urgent issue in need of investigation. Why?

In short, Americans overestimate the possibility of upward mobility in our society. When 3,000 people were asked to guess what the chance would be for someone born into a family of the poorest 20% to work their way up into the richer tiers as an adult, they thought moving up was significantly more common than what actually occurs. Interestingly, those from poorer and politically conservative backgrounds were more likely to believe in greater mobility than wealthier and liberal participants. On a whole, 60% of Americans believe that they can become wealthy if they’re willing to work hard.

But here’s the reality: the United States is now the most unequal of all advanced economies. Moreover, America significantly lags behind Canada and Europe in regards to social mobility.

Wealth Inequality in America

This video features infographics that show the distribution of wealth in America, and highlights both the inequality in wealth distribution in the U.S. and the difference between our perception of inequality and the actual numbers. The divide is far greater than we think it is.

Unfortunately, Americans largely believe that individual talent and effort are the determining factors for success, where those who have wealth and power must somehow deserve it — which also indicates the belief that the less fortunate don’t deserve any better than what they currently have.

According to Scientific American, this orientation is rife with problems:

“By overemphasizing individual mobility, we ignore important social determinants of success like family inheritance, social connections, and structural discrimination. The three papers in Perspectives on Psychological Science indicate not only that economic inequality is much worse than we think, but also that social mobility is less than you’d imagine. Our unique brand of optimism prevents us from making any real changes.

“George Carlin joked that, “the reason they call it the American Dream is because you have to be asleep to believe it.” How do we wake up?”

One U.S. city thinks one way we can begin to lessen the gap is by cracking down on excessive CEO pay — with an added surtax for firms whose CEO’s salary is more than 100 times what their typical worker receives.

The Nation’s First Tax Penalty for Income Inequality

On December 7th, 2016, the city council in Portland, Oregon passed a new local tax rule which will penalize companies for extreme CEO-worker pay gaps.

“The municipality has identified over 500 corporations which “do enough business in Portland to be affected by the surtax, including many that regularly dominate the highest-paid CEO lists, such as Oracle, Honeywell, Goldman Sachs, Wells Fargo, and General Electric. The measure will generate up to $3.5 million in annual revenue to support public services.” [source]

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Sarah Anderson, an Institute for Policy Studies (IPS) veteran, feels “This path-breaking policy tackles a key driver of our growing inequality.” She adds, “I predict this will spark a wave of similar actions, much like the local living wage campaigns that have spread like wildfire across the country.”

Anderson may not be far off in her assessment. Already federal legislators like Rep. Mark DeSaulnier (D-CA) and Rep. Bonnie Watson Coleman (D-NJ) have introduced the CEO Accountability and Responsibility Act (H.R. 6242), a measure which will increase federal tax rates for companies that have CEOs who are paid in excess of 100 times the average workers wage.

The Portland government will make use of CEO-worker pay ratio data available under a provision in the 2010 Dodd-Frank financial reform law, which requires publicly held corporations to report the ratio of CEO and median worker pay to the Securities and Exchange Commission, starting with 2017 figures.

Says IPS associate fellow Sam Pizzigati in a recent press release:

“We may be at the dawn of a new ‘pay ratio politics.’ Corporate pay policies have been driving our income inequality. With annual pay ratio disclosure, we can start insisting that corporations that do the most to make this inequality worse face real consequences for the damage they’re doing.”

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About the author:

Carolanne Wright enthusiastically believes if we want to see change in the world, we need to be the change. As a nutritionist, natural foods chef and wellness coach, Carolanne has encouraged others to embrace a healthy lifestyle of organic living, gratefulness and joyful orientation for over 13 years.

Through her website Thrive-Living.net, she looks forward to connecting with other like-minded people from around the world who share a similar vision. You can also follow Carolanne on Facebook, Twitter and Pinterest.

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