The Pay Gap Between CEOs and Everyone Else Is Way Worse Than You Think


Concerned about income inequality? That's all well and good, but you, and the rest of the globe, are probably nowhere near concerned enough, according to a new analysis of survey and economic data in Perspectives on Psychological Science

Worldwide economic inequality has been skyrocketing in most developed countries since the 2007 economic recession, with little sign of slowing down. But while average folks are aware of a growing gap between the rich and poor, they're not able to visualize its massive size. 

Analysts Sorapop Kiatpongsan and Michael Norton crunched International Social Survey Programme data from 2012 and compared it with Organisation for Economic Co-operation and Development statistics, finding that not only does everyone think the rich are too rich, they don't even know how rich the rich are. 

To help visualize the data, Harvard Business Review assembled these two charts. The first shows the discrepancy between the estimated and ideal pay of CEOs. 

Harvard Business Review

That's pretty bad, but it pales in comparison to the differences between ideal, estimated and actual CEO pay.

Harvard Business Review

Woah: That's kind of insane. Many people were aware that CEOs make a lot of money, but these figures are mind-boggling. 

In the U.S., the study's authors write, "the actual pay ratio of CEOs to unskilled workers (354:1) far exceeded the estimated ratio (30:1) which in turn far exceeded the ideal ratio (7:1)." On average, people across the world estimated that the pay gap between a CEO and a worker was 10:1, while their cited ideal ratio was 4:1. Only two countries, Austria and Poland, fell below 50:1.

Harvard Business Review

An international consensus: While poorer respondents were more likely to judge the pay gap to be larger than their more fortunate counterparts, no one came close to accurately perceiving just how much more CEOs were making. But they were nearly unanimous that it should be much lower. 

Workers across the globe would probably be much more alarmed by how unequal their societies are if they knew how much wealth was being stuffed away in the mattresses of the rich. But perceptions continue to lag behind reality. In the U.S., for example, many Americans tend to view themselves solidly in the middle class regardless of their actual income. Another factor perhaps precluding accurate judgment of pay-gap ratios is that the U.S. rich tend to geographically segregate themselves from the rest of us, living in concentrated pockets of wealth (whether East Egg or West Egg, the important thing seems to be that their neighbors are also well-off).

Norton told the Harvard Business Review that respondents seemed to agree that more needs to be done to combat inequality. But perhaps if more workers knew just how much of the fruits of their labor is going straight into the pockets of the already wealthy, then they'd be a lot angrier.