Comparing Median Household Income to Executive Compensation

In 2010 the median household income in the United States was $49,445. This is the median pre-tax income of all households ranging from married couples to non-family single individuals, and everything in between. In other words, the typical household in the United States, whether a family lives there or just one individual, earns around $49,445 per year. Obviously some families and individuals, if they are white or Asian, male, and have a college education, are making more than this, while others are making less than this. This is just the median, or the mid-point of the entire data set when arranged from lowest income to highest income. I’m not 100% certain of this, but I’m pretty sure that people with no income, the unemployed, are not included in this sample. Only those people who actually have an income are included.

If this number, $49,445, seems ridiculously small to you, that’s because it is and remember this is pre-tax income, so the actual take-home pay is even lower than that. This is what they mean when they say, “the working poor”. I guess this is why food stamp usage has been sky-rocketing lately.

But back to the main point of this article, comparing the typical US income to the compensation of corporate executives. For argument’s sake let’s take this number and create the hypothetical case of a 22 year old who just graduated from college and has landed his first real job at a starting salary of $49,445. Let’s also assume that he gets a 3% pay increase every single year (which at the moment would be a false assumption as median incomes have fallen by 2.3% from 2009 to 2010) and that he works for 40 years before retiring. How much money would he earn over the life-time of his career? We’ll figure that out then compare it to how much money a few CEOs made in 2010, just that one year.

Here is a chart of our 22 year old’s income over the course of 40 years:

As you can see he starts out his first year making $49,445 at age 22 and he gets a 3% pay increase every single year.

  • At age 32 he will be making $64,514
  • At age 42 he will be making $86,702
  • At age 52 he will be making $116,520
  • At age 62 he will be making $156,593

After 40 years of working he will have earned a sum total of $3.73 million dollars. Now let’s compare that to how much money the CEO of Goldman Sachs was paid in just 2010 alone, for just 1 year of work (“God’s work”), he was paid $13.2 million dollars. So in just 1 year he got 3.5 times more money than the typical American household makes in 40 years of work. And remember, 2010 was a “bad” year for Wall St, in 2007, right before the crash, he made $68.5 million.

How much did the CEO of JPMorgan Chase get paid in 2010? He got around $17.5 million dollars. In 2009 the co-president of Morgan Stanley got paid $15 million dollars. If you’re ever lucky enough to become the CEO of a big Wall Street bank, in just one year’s worth of work, you’ll make enough money to support the typical American household for 140 years. This is why #OccupyWallStreet happening.

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