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Why do CEOs get paid so much?
Feb 9, 2022
Episode 597

Why do CEOs get paid so much?

Plus, the pros and cons of unlimited vacation.

In 1965, the ratio of CEO-to-average-worker compensation was 21:1. In 2020, that number had skyrocketed to 351:1. One listener wondered: “How has that gap grown so wide?” We answer that, plus why gas prices list the tenth of a cent and if unlimited vacation is all it’s cracked up to be on this Whaddya Wanna Know Wednesday.

Do you have a question you want us to answer? You can send us a voice memo or call us at 508-UB-SMART (508-827-6278). You can also email us — just send it to makemesmart@marketplace.org!

Here’s everything we talked about on the show today:

Make Me Smart, February 9, 2022 transcript

Note: Marketplace podcasts are meant to be heard, with emphasis, tone and audio elements a transcript can’t capture. Transcripts are generated using a combination of automated software and human transcribers, and may contain errors. Please check the corresponding audio before quoting it.

Marielle Segarra: Let’s do it.

Meghan McCarty Carino: Let’s do it.

Marielle Segarra: Hello, I’m Marielle Segarra. Welcome back to Make Me Smart where we make today makes sense. Thanks for joining us.

Meghan McCarty Carino: And I am Meghan McCarty Carino.  It’s Wednesday. That means it is what do you want to know Wednesday? It’s the day that we like to answer some of your questions that you’ve sent us throughout the week. So thanks for sending those in. And if you have a question that you would like to ask us, you can always email them to us at makemesmart@marketplace.org Or leave us a voicemail at 508-UB-SMART.

Marielle Segarra: Mm hmm. So let’s get to our first question, which is an email from Olivia. She wrote in to ask, “how is it that executive pay went from about 20 times more than the average workers pay in the mid 20th century to about 350 times more today?”

Meghan McCarty Carino: Oof.

Marielle Segarra: Yeah.

Meghan McCarty Carino: So I believe that statistic comes to us from a report that the Economic Policy Institute puts out every year they track the data on CEO pay every year from the top 350 firms in the US. And compensation of top CEOs in this most recent report, they say increased has increased 1,322.2%, from 1978 to 2020. And the thing to really understand about CEO pay is that what we are mostly talking about is stock. So we kind of referenced this on Monday, when we were talking about the Amazon salary cap, which I said sounded kind of low compared to what I know of the lifestyles of tech workers. But that’s because so much executive compensation, you know, white sort of like high, high income white collar compensation does come in the form of stocks, and that is especially the case for CEOs. So stock-related  compensation made up 83% of CEO compensation 2020. It was up even more, you know, over the last several years, considering the stock market has relatively, you know, been a been on an upward trend in general over those years. And that’s like, you know, it’s stock awards, sort of stock bonuses, equity points for when they hit certain targets, stock options, where they have the option to buy stock, at any point in their tenure for the price that it was when they started with the company. So a lot of stock.

Marielle Segarra: Yeah, well, okay, so there’s that. And then there’s the other part, which is that CEOs and their boards have been giving themselves higher salaries, and then haven’t raised pay for workers at the same rate.

Meghan McCarty Carino: Right. Yeah. Nice trick.

Marielle Segarra: Yeah, yeah, that’s a good one. And a bit of context to it. You may remember, at the start of the pandemic, a bunch of CEOs said they would forego or cut their own salaries so they wouldn’t have to lay off workers. But what we know now is on average, CEO compensation still went up in 2020. And that’s partly because of stock options. Like you were talking about Meghan.

Meghan McCarty Carino: All right, well, here’s a question about why gas costs what it does.

Steve:  Hello, Make Me Smart. This is Steve from Lake Forest, California. Can you explain why the price of a gallon of gasoline is still expressed in tenths of a cent? Fifty years ago, a gallon of gasoline was 36.9 cents, but now a gallon of gasoline is over $3 a gallon nationally. Thank you, love the podcast.

Marielle Segarra: Yeah, so Steve noticed as many people probably have, that gas stations list their prices, often with that little nine tenths at the end. And there are a couple of reasons for that. First, you got to understand the history. So in 1932, the federal government put in place one of the first gas taxes, and it was a 10th of a cent and retailers wanted to pass that on to consumers just like they usually do. But it was during the Great Depression, so there was less demand and there were a lot of competition or there was a lot of competition for customers. And at the time, gas only costs like 10 or 20 cents a gallon. So If they were going to increase it by a whole cent, that would be a huge jump in price. So instead, they started pricing their gas in tenths of a cent. And that just kind of stuck. And a reason that it stuck in the reason that it’s still relevant today is the consumer psychology element. Because our brains tend to interpret numbers that end in point nine or a fraction of $1 as cheaper, like if you see 3.99, your brain says, Oh, that’s a lot cheaper than $4. When it’s only, you know, a cent difference. And 99 cent stores have taken advantage of that for many years. And funnily enough, in 2008, the California based chain, it’s called 99 Cents Only actually increased its prices to …

Meghan McCarty Carino: It was such a scandal.

Marielle Segarra: Yeah, so instead of a 99 cents. Now everything basically is like 99.99 cents. And the company actually says on its website that those items actually rang up as $1 at the register. But yes.

Meghan McCarty Carino: That’s what I was going to ask was, how do you pay  nine tenths of a cent? Does it show up on your credit card as nine tenths of a cent?

Marielle Segarra: It does not. But if let’s say you were buying gas, and they increased the prices by like 1/10 of a cent. If you bought 10 gallons of gas, that would round up, that would be a penny that would add up to a penny. So you’re paying an extra penny on your purchase that would show up on your credit card. And if you add up, you know, all the gallons of gas that are bought in the US every day, and every year, that adds up to billions of dollars. So that is one reason why they do it. And actually Marketplace did a bunch of stories on this, our former colleague, Tommy Andreas did a pretty fun story where he drove around to different gas stations and answered some of the common questions about why gas is priced the way it is. So we’ll have a link to that on the show page. Okay, so our next question comes from Scotty in Alameda, California. And it’s a follow up question for you, Meghan.

Scotty: I was wondering if you could make me smart about open vacation policies. I’m looking at an old piece from Meghan McCarthy Carino, talking about how these open vacation policies with no defined accrue days and just take vacation whenever, actually ended with the people using less vacation taking less time off. So I’m wondering, is there something about this that the big companies are now taking advantage of maybe at our detriment?

Meghan McCarty Carino: I can’t imagine a company would do that, why would they take advantage of us at our detriment.

Marielle Segarra: Never no. They love us, we’re family.

Meghan McCarty Carino No, I mean, these these policies, they are definitely kind of a win win for companies, they are able to, you know, present it as a benefit. And, you know, kind of an attractive thing. To attract workers even I just saw an article from just a few days ago, I think, in Fortune magazine saying this is the way to attract workers during the Great Resignation is with open vacation policies. And so they’re they’re seen as a benefit. And also they’re beneficial for companies because they, you know, they don’t have to pay out unused PTO, which in most states, companies do have to pay out any unused vacation time that an employee has accrued. And the culture of vacation is really what is going to dictate whether people are actually going to use that vacation or not, as I reported in that piece, there have been some surveys and some studies that show that these policies actually, you know, cause people to take less vacation, we know that Americans often don’t use the vacation that they have earned in traditional policies because of this sort of culture around vacation. The sort of sense of guilt that workers feel about taking vacation. And just I mean, yeah, I’ve reported on vacation and American culture and kind of work culture a lot. It’s complicated, can link to a story I did from last summer that was like, will the pandemic cause Americans to finally vacation like Europeans? And it’s complic – I don’t know. You know, I do think that the pandemic has kind of added a new wrinkle into this whole equation for a lot of companies last year, you know, people had accrued a lot of vacation had not used a lot of vacation. If you were on one of those open vacation policies, you didn’t accrue anything, it was just like, whatever, you know, every day is a new day, you are not going to feel like okay, well, I should take a vacation because I’ve maxed it out, and I’m going to lose it, which psychologically is a very good motivator for people to use vacation. And so I think during the pandemic, this has really sort of, it’s kind of come to a head where people not only we’re gonna feel guilty about taking vacation, but many people couldn’t take vacation and didn’t accrued if they had one of these open vacation policies. And so, and companies during the Great Resignation and all this turnover and everything companies are not having to compensate people for not taking vacation.

Marielle Segarra: Yeah, I think when there is an open policy, it sounds like there’s no clear expectation for what people will take, right?

Meghan McCarty Carino: And it’s kind of on an individual basis, it’s like, do you feel like you deserve to take a vacation? And does your individual manager approve of it?

Marielle Segarra: Yeah. And in a way, I mean, it’s hard enough, when you don’t have an open policy, even if you get your set amount of whatever it is total … three weeks a year or something. People often feel guilty about taking it, especially if they’re understaffed, which a lot of companies are right now. What that’s gonna dump on your co workers. And, you know, I’m not saying it should run that way. It’s actually the worst, even if your bosses say it’s cool to take it. I think there can be some, some fear around it. But, I mean, I kind of feel like, is that part of the reason why you haven’t taken vacation?

Meghan McCarty Carino: I know, I’m such the pot calling the kettle black. I am very bad at taking vacation over the last like, I, I really need to take a vacation. And I think I am maxed out. I used to be great at taking vacation, I always be using unpaid time off because I had used all my vacation and now I’m maxed out and I need to take vacation. And I’m just finding it difficult to just do it to just clear the schedule and just take the time that I need to do it.

Marielle Segarra: Is it guilt?

Meghan McCarty Carino: It’s guilt. It’s, you know, sort of feeling like, planning is too overwhelming. Planning my life in advance is very overwhelming. I have a lot of personal stuff going on. And then, you know, our schedules for work get made and I feel like they’re immovable. And, like, I just I never on the ball to just request it off.

Marielle Segarra: Yeah, well, I encourage it. I mean, I don’t feel Yeah, I don’t feel guilty at all. I’m going on vacation next week, and I’m super excited about it. I’m going to Puerto Rico. I’m going to be this time next week I’m going to be lying in a hammock sipping a piña colada reading my book.

Meghan McCarty Carino: That sounds fantastic.

Marielle Segarra: All right, well, on that note, that’s it for us today. We will be back tomorrow. Keep sending your questions and comments or something that made you smile we are at makemesmart@marketplace.org. Or leave us a voicemail. Our number is 508-827-6278 also known as 508-UB-SMART.

Meghan McCarty Carino: Make Me Smart is produced by Marissa Cabrera and Marque Green. It was engineered by Charlton Thorp and our intern is Tiffany Bui.

Marielle Segarra: Ben Tolliday and Daniel Ramirez composed our theme music and our senior producer is Bridget Bodnar. Where do you think you’ll go like if you – where’s a place that you are really excited to go?

Meghan McCarty Carino: I really would like to go to Oaxaca probably like is high on my list. Yeah, have some mezcal cocktails.

Marielle Segarra:  Mole, right?

Meghan McCarty Carino: Yeah.

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The team

Marissa Cabrera Senior Producer
Bridget Bodnar Senior Producer
Tony Wagner Digital Producer
Marque Greene Associate Producer