Thursday, January 25, 2007

Mean CEO Pay > Median CEO Pay

According to
The Economist: Between 1993 and 2003 the total pay of the top five executives in the Standard & Poor's 1,500, which accounts for roughly 80% of listed American companies by value, amounted to some $350 billion. The share of earnings consumed by those people's pay rose from 5.2% in the first five years of that period to 8.1% in the second five.

That is a lot of money, to be sure—though not quite as much as it sometimes seems. The “average” pay that is often quoted, and which is used as the basis for comparison with the “average worker,” is the arithmetic mean. The graph above also shows the average earnings of the top three executives all the way back to the 1930s. Whereas mean pay at the peak was 320 times average earnings, the median pay was “only” 120 times.

In 2000-03 their mean annual pay was $8.5m and the median $4.1m. The median is a better measure than the mean because the mean for those top three is skewed by a few huge payments, often to company founders or family managers who are not standard executives.


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