The Growing Wealth Gap: Executive Compensation and Wealth Gap – 2000 to 2016

Abstract

My thesis focuses on studying whether rapid growth in executive compensation over the past two decades can be attributed to value created by top managers and it has contributed to the widening wealth gap. My research showed that the growth in executive compensation far exceeded company financial performance and investor returns during the same period. Furthermore, comparing executive compensation and company financial performance, my research demonstrated that growth in revenues and net income for companies lagged behind increases in executive compensation over the same period. Based on these results, the study concluded that executive compensation is not commensurate with the value creation and can be attributed to rent extraction. The study further analyzed relationship between executive compensation and wealth gap, noting that while executive compensation has grown rapidly, median household income has remained flat. Furthermore, by comparing median household income to median household wealth, a measure used to calculate the wealth gap, I demonstrated that the two are closely correlated, lending support to the idea that excessive executive compensation has contributed to the widening wealth gap.