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A Project of The Annenberg Public Policy Center

Clinton Misuses Stat on CEO Pay

Hillary Clinton said the “average American CEO” makes 300 times more than the typical worker, but she was referring to a study that looked at pay disparity between CEOs and average workers only at the top 350 companies — a fraction of the 246,240 chief executives in the U.S.

Clinton is a repeat offender on this statistic. Our colleagues at the Washington Post Fact Checker dinged Clinton in April when she said, “There’s something wrong when CEOs make 300 times more than the American worker.” And the Wall Street Journal noted that two days earlier, Clinton had made the even less defensible claim — similar to the one we are fact-checking — that “the average CEO makes about 300 times what the average worker makes.”

But Clinton still hasn’t amended the talking point.

In remarks on small businesses in Iowa on May 18, Clinton again failed to properly qualify the statistic.

Clinton, May 18: We need to get back into the habit of actually rewarding workers with increases in their paychecks for the increases in productivity and profitability that they have helped to bring about. You know, Warren Buffett has said it, but so have a lot of other people: There’s something wrong when the average American CEO makes 300 times more than the typical American worker.

The Clinton campaign did not respond to our inquiry about the statement, but the campaign told the Washington Post Fact Checker that Clinton got the statistic from a study by the left-leaning Economic Policy Institute. According to the EPI study, released in June 2014, average compensation for CEOs of the top 350 U.S. firms in 2013 was $15.2 million. That’s 295.9 times higher than the compensation paid to the typical workers at those firms, the study concluded. By comparison, the ratio was 20-to-1 in 1965 and grew to a peak of 383.4-to-1 in 2000. When considering CEO compensation, EPI considered salary and stock options as well as “bonuses, restricted stock grants, and long-term incentive payouts.”

But that study only looked at the CEOs of the top 350 U.S. companies. That represents a fraction of the CEOs in the U.S. In April 2013, Bloomberg looked at the Standard & Poor’s 500 Index of companies and found that “the average multiple of CEO compensation to that of rank-and-file workers is 204, up 20 percent since 2009.”

The EPI report refers to an analysis by Temple University professor Steven Balsam of the 9,692 executives in publicly owned firms who were in the top 0.1 percent of wage earners. He found they had average W-2 earnings of $4.4 million, far below the $15.2 million average compensation for the top 350 CEOs in the EPI report. We reached out to Balsam, and he told us via email that as you include larger numbers of chief executives, the pay ratio between them and typical workers becomes dramatically smaller.

In fact, the Bureau of Labor Statistics reports that there were 246,240 chief executives in the U.S. in May 2014 (a little less than 1 percent of all workers). The median annual wage of those executives was $173,320 (the average wage was $180,700). That’s a little less than five times the median annual wage for all workers, including chief executives, which was $35,540 then. (The ratio is closer to 4-to-1 if comparing the average wage of CEOs to the average wage of all workers, $47,230.)

The BLS data are wages and not total compensation, which can include items such as stock options, bonuses and benefits. So this isn’t an apples-to-apples comparison with the figures from the EPI report, but it is further evidence that when all CEOs are included, the pay disparity is far smaller than that cited by Clinton.

Drilling down, the mean wage for the 21,550 chief executives at “management of companies and enterprises” was $216,100. The ratio for these executives is closer to 4.5-to-1 if considering average pay. (We were not able to exclude chief executive pay from the BLS data on all workers; if we could, the disparity between chief executive pay and that of all other workers would likely be larger.)

In other words, the “average American CEO” earns far less than the average CEO at the biggest 350 firms, and the ratio between the pay of the “average American CEO” and the average American worker is far smaller than the figure cited by Clinton.

Clinton could easily amend this talking point by referring to CEOs at “top” American firms, or some similar qualifier. But on several occasions now, she hasn’t.

— Robert Farley