Negotiating on CEO Pay: The UAW Has the Right Idea

August 20, 2023

Shawn Fain, the president of the United Auto Workers, said that he viewed the 40 percent pay increases received by the auto industry’s CEOs as a benchmark for the pay increase the union’s members should be receiving in their next contract. It’s not clear if he intends to make the pay of the CEOs and other top management a topic in negotiations, but it would be great if he did.

While there has been some shift from wages to profits over the last four decades, most of the upward redistribution went from ordinary workers to high-end workers like CEOs and other top managers, Wall Street types, and the elite in the tech sector. If the union can put some serious downward pressure on the pay of top management it could be a big step in reversing this upward redistribution.

The problem with CEO pay is that there is no effective check on it. For ordinary workers, managers know that they can boost the company’s profits if they can force workers to accept lower pay. But, there is no one trying to force lower pay on top management.

Ostensibly, corporate boards of directors are supposed to be keeping a lid on CEO pay, since in principle they represent shareholders. However, there is little reason to believe that they act as the textbook says Top management typically plays a large role in selecting directors.

And, once a director is appointed they are virtually assured of keeping their job as long as they remain on good terms with the other directors. Directors who are nominated for re-election by the board, win their elections more than 99 percent of the time. This means that they have little incentive to ask pesky questions, like “can we pay our CEO less?”  

Being a director pays very well, with the average director of a major company getting pay and options worth several hundred thousand dollars a year for around 400 hours of work. It’s good work, if you can get it.

As a result, most CEOs don’t even see their job as involving reining in the pay of top management. Instead, they view themselves as serving top management, helping them to achieve their goals.

This is a big deal because the high pay received by CEOs and other top management corrupts pay scales throughout the economy. If the CEO is getting $20-$30 million, then the next level of management is likely getting $10-$15 million, and the third-tier executives are likely getting $2-$3 million.

And, these bloated pay structures in the corporate sector spill over to the rest of the economy. The CEOs of major universities or large charities often get $2-$3 million a year, and their top assistants can get pay of close to $1 million. Pay structures have become so distorted that many people now consider it a major sacrifice to work in top government positions that pay around $200,000 a year.

This picture would change radically if we could put some serious downward pressure on the pay of CEOs. If we were back in the world of the 1960s-70s, CEOs would be earning 20 to 30 times the pay of ordinary workers rather than 200-300 times. This would put their pay in the range of $2-$3 million a year. Think of how different the world would look if the CEOs at our largest most successful companies were pocketing $3 million a year, instead of $30 million, or even more.

Mary Barra, the CEO of GM, pocketed just under $29 million last year. Good luck to the union in trying to bring that figure down to earth. They will be doing the whole country a service.


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