Paul Sancya/AP Photo
United Auto Workers president Shawn Fain, left, talks with autoworkers outside the General Motors Factory Zero plant in Hamtramck, Michigan, July 12, 2023.
Among the many demands that the new leadership of the United Auto Workers has made to the Big Three legacy automakers, I have a personal favorite. It calls for a 40 percent raise for its members over the four-year period of its next contract, which is based on the 40 percent compensation increase that the companies’ CEOs have received during the past four years.
In other words, if the bosses are raking it in, why aren’t their employees?
The demand is my favorite because it goes to the core of how the American economy has become so misshapen, and because it dramatizes that misshapenness in a way that can both inform the public and build public support for systemic change.
Back in the 1960s, when the New Deal’s laws and norms had yet to be degraded, the ratio between CEO pay and median worker pay was roughly 20-to-1. That ratio began to expand in the following decade and began to soar in the Reagan ’80s. As taxes on the top incomes were greatly reduced, as CEOs began to be compensated not just with salaries but with their companies’ shares, and as Reagan’s SEC permitted those CEOs to have their companies buy back shares, which increased the value of the shares with which they were awarded, that ratio zoomed past 100-to-1. Today, several organizations calculate that ratio every year, and in recent years, it has hovered in the 300-to-1 range.
That, to put it mildly, raises a host of questions. How, exactly, are today’s CEOs worth so much more than their mid-20th-century predecessors? Why is General Motors CEO Mary Barra’s work worth 300 times the value of GM’s employees’ work when Alfred P. Sloan, GM’s legendary leader from the mid-1920s through the mid-1950s, who first devised and implemented such industry practices as yearly styling adjustments (i.e., planned obsolescence) to its cars and who led GM to the very pinnacle of American capitalism, was worth just 20 times what his employees made? Is Barra really 15 times more valuable to GM than Sloan was when compared to his employees? Or, to look at the other side of the ratio, are GM employees today worth just one-fifteenth of their 1950s predecessors when compared to their CEO? Even though the dollar value of the median worker’s output today, even when adjusted for inflation, is many times higher than the dollar value of a 1950 worker’s output?
By highlighting this absurd discrepancy in pay, the UAW can help inform an American public that completely fails to grasp just how great that discrepancy really is. A 2016 survey by the Stanford Business School revealed that Americans on average believe that CEOs are making roughly one-tenth the yearly income that they actually pull down. Even with that misunderstanding, more than 70 percent still believe that CEOs are overpaid. Indeed, they also responded that the right ratio between CEO and median worker pay should be 6-to-1.
Corporations generally issue threadbare explanations for why their top executives make so much. They argue they need to offer pay packages comparable to other corporations’ pay to attract top talent (of course, pay is set by corporate boards fairly larded with other companies’ CEOs—what a racket). They also contend that paying a CEO with shares gives that CEO a stake in the company’s performance (as if workers don’t have a stake in that, too). These are the companies’ apologias for CEO pay; as to the issue raised by those stratospheric ratios, companies hardly ever address that at all.
The UAW is now forcing the Big Three to defend those ratios, which would be a disaster for them in the court of public opinion and just might lay the groundwork for some long-overdue changes in public policy (taxes? buybacks?) and the scope of worker demands and rights. So: Go, UAW!
