Fair Game? How many average workers’ salaries does it take to pay the CEO?

October 17, 2016 BY danariely

Inequality is an important topic and one that politicians and scholars spend a lot of time thinking about. But what does the general public think about inequality and the many ways it manifests in daily life? And how do factors like age, gender, or political leanings relate to our views on inequality?

Those are the questions we are exploring with Fair Game?, our new app that asks users what they think about the world as it is today and what they would want in a fair world.

We’re asking users about 13 different topics related to inequality, from wage gaps to opportunities for education, and will be sharing our findings every few days now through mid-November.

Please join us and play along by downloading Fair Game? from iTunes or Google Play. We’ll release a new question every few days until we get through all 13.

You can think about the first topic right now.


So far, the data show a consistent knowledge gap.


Our users estimate that the average CEO’s pay is equal to 151 average worker salaries. In reality, the average CEO makes the same as 303 average workers combined. What do people think CEOs should be paid in a fair world: the same as 72 average employees combined.

We also found some interesting patterns in what people think.


Younger people estimate the ratio of CEO pay to average worker pay to be larger than others do, and also think a larger ratio is fair. Perhaps younger people have lower salaries and therefore think the average worker’s salary is lower? Or they are looking ahead to larger, CEO-like salaries in the future, and that influences what they think is fair?

What about gender?


It is notable that males and females arrive at the same number for what would be fair (72 average worker salaries for each CEO), but differ in what they think currently exists in the world (158 for males vs. 140 for females). Perhaps the gender wage gap influences the perception of what salaries are in the world?

And political leaning?


People who identify as conservative and those who identify as liberal give similar estimates of what the current CEO to average worker salary is (149:1 and 152:1, respectively). But political leaning makes a big difference in what people think what would be fair.  Liberal respondents believe 63:1 would be fair, whereas conservative respondents believe that 93:1 would be fair.

It is encouraging that political leaning does not dramatically change our respondents’ perceptions of the world. Both conservatives and liberals underestimate the magnitude of executive pay relative to worker pay in the United States. But their differing assessments of what would be fair suggests that conservatives and liberals might choose different approaches to reducing the executive-to-worker pay ratio.

Executive compensation is by no means a simple issue. In fact, the 2016 Nobel Prize in economics was awarded to researchers who considered how motivational factors should be related to pay, bonuses, stock compensation and the timeframe of company performance in order to achieve optimal levels. One of the winners, Bengt Holmström, told a reporter after hearing he had won, that he thought executive bonuses were “extraordinarily high” and compensation contracts were too complicated.

Has it always been like this? The ratio of executive pay to worker pay was 20-to-1 in 1965, when CEOs earned an average of $832,000 annually, compared to $40,200 for workers (adjusted for today’s dollars). In 2000, the number peaked at 376-to-1, and has since settled back down to the recent level of 303-to-1 (and some estimates are as low as 216-to-1).  This increased ratio means that CEO compensation has risen dramatically over the past few decades, but the average worker compensation has not. In 2014 the average CEO made $16,316,000 compared to the $53,200 made by the average worker.

In an effort to promote greater transparency, the Securities and Exchange Commission will soon require every publicly traded company in the United States to disclose this ratio. A recent bill proposed in the California Senate calls for instituting a sliding scale of corporate taxation, with companies paying different tax rates based on their ratios and sharper increases for those with CEO to average worker pay ratios greater than 100-to-1. Other proposals for reducing the ratio and social ramifications of large gaps in companies include greater profit-sharing across employees and a more consistent relationship between (long-term) performance and bonuses.