CEO Pay Is an Underrated Risk to Stocks

As U.S. stock investors contemplate the biggest long-term risks facing the market, such as a global economic slowdown, trade tensions or rich equity prices, they shouldn’t overlook a critical one: the pay disparity between corporate bosses and workers.

In 2015, the Securities and Exchange Commission adopted a rule that required public companies to disclose the median compensation of employees and that of the CEO, beginning with fiscal year 2017. The numbers have confirmed what many suspected: Chief executives are paid tremendously more than workers.   

The numbers also revealed that hundreds of the biggest U.S. public companies pay their workers less than a living wage. That’s not sustainable. As the grim pay disclosures pile up year after year, the backlash against the corporate elite will intensify. If corporate boards can’t find a better balance in their pay structure, outside forces will, and at a potentially far greater cost to companies and their shareholders.

My Bloomberg colleagues Alicia Ritcey and Jenn Zhao compiled the CEO-to-worker compensation ratios for companies in the Russell 1000 Index, which represents roughly the 1,000 largest U.S. public companies by market value, and laid them out in a superb interactive chart.

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