New York – The city that never sleeps has once again made headlines, this time for the soaring compensation packages of its top executives. According to data analyzed by Equilar for The Associated Press, the median pay package for CEOs of companies in the S&P 500 rose by a staggering 12.6% last year, reaching a record high of $16.3 million. This increase far outpaced the 4.1% rise in wages and benefits for private-sector workers, putting considerable pressure on Americans’ budgets.
At half of the companies included in the survey, it would take the average worker almost 200 years to earn what their CEO made in just one year. This stark contrast between executive pay and worker pay has raised concerns about income inequality and the overall dissatisfaction among Americans about the economy.
But why did CEO compensation see such a significant jump? Experts point to the remarkable resilience of the economy, which led to strong profits and boosted stock prices. After navigating the challenges of the pandemic, companies faced new obstacles in the form of persistent inflation and higher interest rates. In response, many boards of directors felt the need to reward and retain their CEOs, leading to increased compensation packages.
Kelly Malafis, founding partner of Compensation Advisory Partners in New York, explains, “In this post-pandemic market, the desire is for boards to reward and retain CEOs when they feel like they have a good leader in place. That all combined kind of leads to increased compensation.”
However, not everyone is convinced that these soaring pay packages are justified. Sarah Anderson, director of the Global Economy Project at the progressive Institute for Policy Studies, believes that the growing gap between top executives and workers only adds to the overall dissatisfaction among Americans about the economy. She points out that while inflation is a major concern, the pain is felt even more because wages are not increasing enough to keep up.
In recent years, there has been a push from shareholders to tie CEO compensation more closely to performance. As a result, a large portion of pay packages now consist of stock awards, which can only be cashed in after meeting certain targets, such as a higher stock price or improved profits. The median stock award saw an 11% increase last year, compared to only a 2.7% rise in bonuses.
The AP’s CEO compensation study included data from 341 executives at S&P 500 companies who have served at least two full consecutive fiscal years at their companies. The top earner in the survey was Hock Tan, CEO of Broadcom Inc., with a pay package valued at a whopping $162 million. Tan’s compensation included stock awards valued at $160.5 million, which he can only cash in on if the company meets certain targets and he remains CEO for five years.
Other top earners in the survey include William Lansing of Fair Isaac Corp ($66.3 million), Tim Cook of Apple Inc. ($63.2 million), Hamid Moghadam of Prologis Inc. ($50.9 million), and Ted Sarandos, co-CEO of Netflix ($49.8 million).
At Apple, Cook’s compensation actually saw a 36% decline from the previous year. This was in response to a vote at the company’s 2022 annual meeting, where only 64% of shareholders approved of his pay package.
It’s worth noting that the survey’s methodology excluded CEOs such as Nikesh Arora at Palo Alto Networks ($151.4 million) and Christopher Winfrey at Charter Communications ($89 million).
One notable absence from the survey is Elon Musk, CEO of Tesla Inc. While Musk received no compensation as CEO, his pay has been a topic of discussion at the electric car company. Musk is currently asking shareholders to restore a pay package that was previously struck down by a judge in Delaware. The compensation, mostly in the form of stock awards, is now estimated to be worth around $45 billion.
The growing gap between CEO pay and worker pay is a cause for concern. While workers have seen some gains in wages and benefits, the disparity between the person in the corner office and everyone else continues to widen. At half of the companies in the survey, the CEO made at least 196 times what their median employee earned, up from 185 times in the previous year.
This gap is particularly wide at companies where employees typically earn lower wages, such as retailers. At Ross Stores, for example, the median worker would have to work for 2,100 years
