Unpacking CEO Risk and Success & The Wage Divide

**SPEAKER_2** (0:04)
The Bliss Business Podcast, the show about empathy, connection, and consciousness in business. Today's episode is brought to you by Zero Company, your paid search, social media, and programmatic ad experts.

**Stephen Sakach** (0:19)
What was that? Ash got baby Grogu over his shoulder. Was that him talking?

**Ash Maher** (0:22)
Yeah, that was Grogu.

**Tullio Siragusa** (0:25)
It was saying to me, y'all shall sing the song.

**Stephen Sakach** (0:28)
Hello, and welcome back to the show. Did you know that since 1978, CEO pay at top companies is up over 1000 percent? Well, average worker pay is up only 24 percent during that time. We're breaking down CEO compensation on today's show. I'm Stephen Sakach here again with Tullio, Siragusa, and Ash Maher. Hey, guys. Hello.
Well, last month, a report came out. So we're reading reports from the Economic Policy Institute so you don't have to. But last month, they reported that CEO pay actually declined last year, but it has soared 1085 percent since 1978 Well, as I mentioned, typical worker pay rose 24 percent. This is just looking at the top 350 firms in the US. So if you go back to 1965, so 60 years ago, CEO pay at the time was 21 times the typical worker. In 2023, that was 290 times, and that was down from 400 times the typical worker. There's a graph that went along with this report, and you can see CEO pay edge up slightly in the late 70s before it doubled in the 80s, setting the table for the dot-com boom of CEO compensation. And things have never been the same. So what happened in the past 60 years? There are some key things that set the table for this and left worker compensation behind, and that's what we're going to talk today about. So Tullio, let's go over some key moments and trends that contributed to this rise in CEO wealth concentration. Take us back to the 70s where we've got bell bottoms, disco, gas guzzling cars, three-piece suits and those wide ties. What happened in the corporate world besides that?

**Tullio Siragusa** (2:29)
Well, someone comes out with a brilliant idea and everybody just follows along. So in this case, Milton Friedman's Doctrine. In the 1970s, economist Milton Friedman famously argued that a corporation's sole responsibility is to maximize profits for the shareholder. And everyone followed suit on this. So this shifted corporate focus from stakeholder focus, which included employees, community and the environment, toward shareholder returns, justifying increasingly large executive pay and aggressive cost-cutting measures. So it became all about, you get rewarded for generating shareholder value. At what expense? Well, we have a whole history of things that have happened.

**Stephen Sakach** (3:18)
We've had this a lot.

**Tullio Siragusa** (3:20)
We could dig into all that came out of that. And then in the 1980s, stock options as compensation was introduced, as if it wasn't enough to have a huge paycheck. Let's give a piece of the pie, which creates even greater return for these CEOs. But so these stock options, based on performance, became a thing as well. Now, while it was intended to align a CEO with the company's best interests, it also encouraged short-term profit maximizing behavior, such as just making the profits at all costs, you know, even if you have to stop the practices, whatever it takes to make your bonus. That's kind of what drove a lot of the behavior.

**Stephen Sakach** (4:15)
So yeah, we talk about those two things a lot, is that single shareholder purpose, and how many issues come up from that. And then we also talk about that short-term incentives for CEOs and how a lot of that can just cause a lot of problems. So mid-1970s, you begin to see that CEO compensation start to creep up outpace employees a little bit, but it didn't really start taking off until the 80s. Ash, what's going on then? We've got MTV, we've got big hair, neon clothes.

**Ash Maher** (4:51)
And we had an actor for a president, right? We had Ronald Reagan coming in with deregulation and essentially getting the government's hands out of business, right? So with the leaders of champion deregulation and free market policies, this reduced government oversight on businesses. So when that oversight was reduced, what happened? Will people lean back on what they enjoyed the most, the bonuses, right? Maximize those profits, make that money and get your bonus, right? So this created more room for corporate strategies, focused on maximizing profits and justifying high executive pay. Because I own this company, I get to justify what I get paid out of the government is not involved. And then additionally, we have globalization that occurred, right? So as companies globalize, they face pressure to compete on a global scale. So the bigger is better mentality took hold. This fostered competitive pressures that emphasize maximizing profits and cutting costs.