As longest economic expansion in history continues to advance, most households in America are getting a raise. But the benefits of the strong economy have not been distributed equally, and the gains in wages and benefits for the vast majority of Americans have been sluggish.
Not so for Houston’s CEOs. Median executive compensation in Houston rose 5.4 percent last year, according to data collected by S&P Global Market Intelligence and analyzed by the Houston Chronicle. That was three times the rate of average Houston workers, who saw their total compensation, including benefits, increase 1.8 percent in 2018, according to the Labor Department.
The median Houston executive last year was compensated nearly $4.2 million, which includes salary, stocks, options, bonuses, and other benefits, which companies report as a single estimate of annual compensation. Their typical raise — about $147,500 — was equivalent to about three times the median household income in Houston.
The slow growth in wages and benefits indicates that not everyone is fully benefiting from the record expansion, even though firms have ramped up hiring. Texas’ unemployment rate is at a record low of 3.4 percent, and in Houston, the region added about 90,000 jobs in June 2019 over the past year, a gain of 3 percent compared to 2.6 percent in Texas and 1.5 percent nationally
For executives, a strong national economy typically correlates with more lucrative paydays, since most of the value of an executive’s compensation comes from stock-based long-term incentives tied to the financial success of the company. So, if Wall Street does well, the executive does well.
The relationship has led to a dramatic rise of executive pay in recent decades, adding to growing wealth and income inequality. The share of wealth owned by the richest 0.1 percent of families grew from 7 percent in 1978 to 22 percent in 2012, a level comparable to the early 20th century, according to a study by economists at UC Berkeley and the London School of Economics.
68 times more
More attention on wealth and income inequality has led to new requirements for public companies and new interest in the issue by researchers. The Federal Reserve, for example, rolled out a new dataset this year to track household wealth distribution on a quarterly basis.
At the same time, as rising wealth and income inequality, executive pay has risen dramatically, more than tripling between the early 1990s and early 2000s, according to a study published by the Journal of Finance Economics, a peer-reviewed academic journal. The trend led policy makers to implement a requirement that public companies report how the pay of their CEOs compare with median earnings of their workers.
The median compensation of top Houston executives was 68 times higher than their median employee’s pay in 2018. Last year was the second time that companies have been required to report the comparison between executive and employee pay.
The ratio of executive to employee pay can range widely, depending on the composition of their workforce. Some companies, for example, have large shares of part-time employees, international workers and contract employees, all of whom are paid significantly less than an average full-time U.S. workers.
For example, McDermott International Inc., a $1.2 billion construction and engineering company, had the highest pay disparity between its chief executive salary and its median employee in Houston: President and CEO David Dickson made 847 times that of their median employee, who made $13,335 per year.
A spokesperson for McDermott said this pay disparity was not an “apples to apples” comparison to other companies because listing requirements mandate that companies account for all employees, not just full-time American employees. For McDermott, the median employee in 2018 was an Indian national working as a structural fitter at a fabrication yard in Dubai.
“We set this employee’s market-competitive compensation based on a close review of local non-US compensation practices,” Gentry Brann, a McDermott spokesperson said in statement. “Smaller Houston-area employers do not have comparable multi-national, complex operations to McDermott’s.”
Still, even with these discrepancies, those who work for Houston’s largest public companies — dominated by the energy industry — tend to do better than the average Houstonian. The median employee reported by local companies made $81,096 last year, compared to the median household income in Houston of $49,400, according to Census data.
That’s one reason why some experts don’t believe rapidly growing executive compensation should be a top concern when considering workers’ wages. Chuck DeVore, the vice president of national initiatives at the Texas Public Policy Foundation, a conservative think tank in Austin, said that while the rise of the information economy has increased salaries for those at the top of the income distribution, those gains don’t take away from workers’ gains in the bottom or middle of the income distribution.
“This isn’t a zero sum game,” DeVore said. “(The highly skilled) hire people who make more money than they would have if they were living in a different town. If you have payrolls rising at a decent clip, I’m not all that concerned about what people at the high end are making, as long as we’re all doing better.”
Payrolls are rising. Average hourly earnings for U.S. workers increased 3 percent between December 2017 and December 2018, according to the Labor Department.
Executives’ pay, however, is rising much faster. The median Houston executive’s base salary in 2018 — real cash, not including equities or other incentives — was about $695,800, up nearly 10 percent from about $634,900 in 2017.
Houston worker advocacy groups said the contrast between the richest rich and everyone else is particularly stark in Houston, where 20 Fortune 500 companies are headquartered.
“There’s such a big gap in what our executives are paid, with oil and gas, petrochemical and other energy companies here, the executives are making million dollar salaries, and the average worker is not able to live the American dream,” said Eric Goodie, the vice president for the Houston Area Urban League, a nonprofit economic development organization. “The working class is hard pressed, especially at the entry level.”
Workers are beginning to see rises in pay, but some experts say there’s a lot of ground to make up from the last recession. Elise Gould, an economist at the Economic Policy Institute, found that since 2007, inflation-adjusted wages for the bottom 10 percent of earners has increased 8.4 percent, while wages for the top 10 percent of earners grew 13.1 percent over the same period.
Academics and workers right’s organizations most often attribute income disparity and stalling wage growth to corporate lobbying interests that dismantled many worker protections. The decreasing prevalence and participation in unions, reductions in trade barriers and lower top marginal tax rates have eroded protections for workers over the last four decades, while maintaining income protection for those at the top of the distribution, according to research published in March by Robert Manduca, a PhD sociology student of Harvard University in a peer-reviewed journal.
As the business lobby has pressed lawmakers and policy makers to weaken protections for employees, most of the income gains have shifted to the top earners, Manduca found. That means that those who make the most in the U.S. economy continue to see big leaps in compensation, while the majority of the population sees very little change in their salaries. As a result, wide gaps continue to grow between the richest Americans and everyone else.
“Corporate interests over the last 40 years have sought to diminish the power of working people,” said Jose Garza, the co-executive director of the Workers Defense Project, an Austin workers rights organization. “Unfortunately, Americans have come to believe that corporations are actively rigging the rules of the economy, and they’re right.”