Who Sold Us This Idea? · CEO pay
Who sold us CEO pay?
In 1965 a big-company CEO made about 21 times what a typical worker made. In 2025 it was 325 times. A consultant, two economists, a magazine, a regulator and a president each carried the idea one step further. Move the idea through the people who carried it.
Who thought of the idea?
Slide through time, drag the blue idea across the map, or use the arrow keys. Each bubble is sized by the figure in the chart below at that point: a ~ marks an estimate and ? means no data yet. Lanes are kinds of institutions. Solid lines hand the idea straight to the next carrier; dashed lines are a push in parallel.
?
one typical worker’s pay
What it did to CEO pay
CEO-to-typical-worker pay ratio at the 350 largest US firms, realized pay, from the Economic Policy Institute (2025 data edition). From 1992 the figures come from annual company filings. Before that EPI relies on an older survey, and years that fall on a straight line between survey years are drawn hollow as estimates.
The money came lateThe ratio barely moved from 1965 to 1973, hovering around 23 to 1. The ideas were born in the 1950s and 1970s. The money arrived later: a slow climb in the 1980s, then a near vertical jump in the 1990s.
The pitch never changedPatton in 1951 and Jensen and Murphy in 1990 made the same sale: executives are underpaid compared with what they are worth. Only the justification changed, from fairness to incentives.
Even its authors flinchedJensen and Murphy wanted options to replace other pay. Boards stacked options on top of pay they already gave. Murphy said it happened to their chagrin.
The case for the defense
- Jensen and Murphy argued the option explosion came mostly from Congress (162(m)), not their paper. Kevin J. Murphy, ProMarket 2024, source 20
2 more defenses are being sourced before they go up.
Sources
- Duff McDonald via Ritholtz, Is McKinsey to Blame for Skyrocketing CEO Pay? (2013)
- TIME, interview with Duff McDonald on The Firm (2013)
- EconBiz, Arch Patton HBR bibliography
- Wikipedia, William H. Meckling
- TIME, The social responsibility of business is... what again?
- ProMarket, Jensen and Meckling 1976
- INET, Lazonick on SEC Rule 10b-18
- SASE, Lazonick paper on Rule 10b-18 and the Hoover conference
- USC Gould, Jensen and Murphy HBR 1990 citation
- Conference Board, On Executive Pay, Simpler Is Better
- University of Rochester, tribute to Michael Jensen
- Harvard Law Forum, Pay Harmony and the 1992 SEC rule
- NBER Digest, Does the Tax Code Influence CEO Compensation?
- D&O Diary, Cox testimony on 162(m)
- Arkansas Business, Elson study on peer groups
- strategy+business, compensation benchmarking and leapfrogs
- IGOPP, Allaire on Jensen and stock options
- EPI, CEO pay (2025 data edition)
- EPI, CEO-to-worker compensation ratio, 1965 to 2025 (chart data, realized pay)
- ProMarket, Murphy on Mike Jensen and CEO pay (2024)