Planet Money When CEO pay exploded (update)
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Sep 17, 2025 Explore the breathtaking rise of CEO compensation since the 1990s and its impacts on wealth distribution. Delve into how political movements and tax code changes fueled the disconnect between pay and performance. Learn about the protests from Silicon Valley workers and the fallout from accounting reforms. Discover the rollercoaster trends of CEO pay, including a surprising decline noticed in the 2000s and the implications of the Dodd-Frank Act on pay transparency. It's a fascinating journey through corporate America’s evolving landscape!
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Pay For Performance Rationale
- Economist Kevin Murphy argued CEO pay should be tied to company performance rather than company size alone.
- He warned fixed big pay made CEOs complacent because pay didn't reflect yearly performance.
Clinton Tax Cap On Deductions
- The 1993 tax change capped deductible executive pay at $1 million per person for corporate tax purposes.
- That cap created pressure to restructure compensation toward forms exempted by the rule.
Performance Pay Exception
- The tax code exempted pay ‘‘tied to performance’’ from the $1 million deductible cap.
- This exemption effectively encouraged companies to switch to performance-linked compensation.