Wealth Inequality and CEO Compensation

Abstract

Over the past twenty years there has been a dramatic increase in both CEO pay and the wealth of the richest Americans. We examine three hypotheses regarding the relationship between wealth inequality and CEO compensation: first, that the increase in CEO income inequality helped cause increased wealth inequality; second, that increases in wealth inequality helped cause increased CEO income inequality; and third, that both types of inequality are caused by a third factor. We test these hypotheses by using ExecuComp and Forbes 400 data to estimate power law distributions and compare the behavior of these distributions over time. We find no support for any of the three hypotheses.