NEW YORK — The typical compensation package for CEOs who run companies in the S&The P500 rose nearly 13% last year, easily outpacing employee gains at a time when Inflation put significant pressure on US budgets.
The average compensation package for CEOs rose to $16.3 million, an increase of 12.6%, according to data analyzed by Equilar for The Associated Press. Meanwhile, wages and benefits for private sector workers rose 4.1% through 2023. At half of the companies in this year’s wage survey, it would take the worker in the middle of the company’s pay scale almost 200 years to do what their CEO did.
CEOs were rewarded as the economy showed remarkable resiliencesubstantiation strong profits And boosting stock prices. After coping with the pandemic, businesses faced challenges due to persistent inflation and higher interest rates. About 20 CEOs in AP’s annual survey received pay increases of 50% or more.
“In this post-pandemic market, boards want to reward and retain CEOs when they feel they have a good leader,” said Kelly Malafis, founder of Compensation Advisory Partners in New York. “All this together leads to higher compensation.”
But Sarah Anderson, who directs the Global Economy Project at the progressive Institute for Policy Studies, believes the income gap between top executives and workers plays a role in Americans’ overall dissatisfaction with the economy.
“The main focus here is on inflation, which people are really feeling, but they’re feeling the pain of inflation even more because they’re not seeing their wages rise enough,” she said.
Many companies have heeded shareholders’ calls to tie CEO pay more closely to performance. As a result, a large part of compensation packages consists of stock awards, which the CEO often cannot cash in for years or even at all unless the company meets certain targets, usually a higher share price or market value or improved operating results. . The average stock award increased by almost 11% last year, compared to a 2.7% increase in bonuses.
The AP survey of CEO pay included pay data for 341 executives at S&P 500 companies that have served at least two full consecutive fiscal years with their company, filing proxy statements between January 1 and April 30.
Broadcom Inc. CEO Hock Tan topped the AP survey with a pay package worth about $162 million.
Broadcom on October 31, 2022 awarded Tan shares worth $160.5 million for the company’s 2023 fiscal year. Tan was offered the opportunity to earn up to 1 million shares starting in fiscal 2025, according to a securities filing, provided Broadcom’s shares meet certain targets — and he remains CEO for five years.
At the time of the grant, Broadcom’s shares were trading at $470. Tan would receive a portion of the stock rewards if the stock reached $825 and $950 between October 2025 and October 2027, and the full reward if the average closing price was at or above $1,125 for 20 consecutive days between October 2025 and October 2027. The goals seemed ambitious when they were set, but the stock has since skyrocketed, reaching an all-time high of $1,436.17 on May 28.
Just like competitor Nvidia Inc. , Broadcom is part of the current artificial intelligence frenzy among tech companies. The chips are used by companies and public entities ranging from major banks, retailers, telecom operators and government agencies.
In making the stock award, Broadcom noted that under Tan its market value has risen from $3.8 billion in 2009 to $645 billion (as of May 23) and that its total shareholder returns over that period easily exceeded that of the S sector.&P500. It also said that Tan will not receive any additional stock awards for the remainder of the five-year period.
Other CEOs topping the AP 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 represented a 36% decline from the previous year. Cook requested a pay cut for 2023, in response to the vote at Apple’s 2022 annual meeting where only 64% of shareholders approved his pay package.
The study’s methodology excluded CEOs like Nikesh Arora at Palo Alto Networks ($151.4 million) and Christopher Winfrey at Charter Communications ($89 million).
Although securities filings show that Elon Musk received no compensation as CEO of Tesla Inc., his salary is currently the priority at the electric car company. Musk is asking shareholders to restore a pay package that was struck down by a Delaware judge, who said the approval process for the package was “deeply flawed.” Compensation, primarily stock awards that were valued at $2.3 billion when awarded in 2018, is now valued at approximately $45 billion.
Workers across the country have seen higher wages since the pandemic, with wages and benefits for private sector workers rising 4.1% in 2023 after a 5.1% increase in 2022, according to the Department of Labor .
Even with these gains, the gap between the person in the corner office and everyone else continues to widen. Half of CEOs in this year’s pay survey earned at least 196 times what their average worker earned. That’s up from 185 times in last year’s survey.
The gap is especially wide at companies where workers typically earn lower wages, such as retailers. At Ross Stores, for example, the company says the employee in the middle of the pay scale was a part-time store employee making $8,618. It would take 2,100 years to earn that much to match CEO Barbara Rentler’s pay starting in 2023, worth $18.1 million. A year earlier, it would have taken the average worker 1,137 years to match the CEO’s salary.
Corporate executives often feel pressure to keep increasing pay for high-performing CEOs, fearing they will walk out the door and earn more from a competitor. They focus on paying compensation that is competitive within their sector or market and not on the wage ratio, Malafis said. The better a director performs, the more the board is willing to pay.
The difference between what the CEO earns and what the employees earn was not always so great.
After World War II and into the 1980s, CEOs of large publicly traded companies earned about 40 to 50 times the average wage of employees, says Brandon Rees, deputy director of corporate and capital markets for the AFL-CIO, which runs an Executive Paywatch website manages. that tracks CEO compensation.
“The (current) pay ratio suggests a kind of ‘winner-take-all’ culture, where companies treat their CEOs as, you know, as superstars rather than as team players,” Rees said.
Despite the criticism, shareholders tend to give overwhelming support to compensation packages for company executives. According to Equilar data, companies typically received just under 90% of votes for their executive compensation plans between 2019 and 2023.
However, shareholders occasionally reject a compensation plan, although the vote is not binding. By 2023, shareholders of 13 companies in the S&P500 gave executive compensation packages less than 50% support.
After investors again praised executive compensation packages, Netflix met with many of its largest shareholders last year to discuss their concerns. There have also been discussions with major proxy advisory firms, which are influential because they recommend how investors should vote at companies’ annual meetings.
Following the talks, Netflix announced several changes to reshape its compensation policy. First, it eliminated the ability for managers to split their compensation between cash and options. No more stock options, which can give managers a payday, will be issued as long as the stock price remains above a certain level. Instead, the company will provide restricted stock that managers can only benefit from after a certain period of time or after certain performance measures have been met.
The changes will come into effect in 2024. Last year, co-CEO Ted Sarandos received options worth $28.3 million and a cash bonus of $16.5 million. Co-CEO Greg Peters received options worth $22.7 million and a cash bonus of $13.9 million.
Anderson of the Institute for Policy Studies said Say on Pay votes are important because they “shine a spotlight on some of the most egregious cases of executive access, and it could lead to negotiations over pay and other issues that shareholders may raise.” want to bring. with business leadership.”
“But I think in some cases the impact, certainly on the overall size of CEO packages, hasn’t had much effect,” she said.
More women participated in the AP survey than in previous years, but their numbers in the corner office are still minuscule compared to their male counterparts. Of the 342 CEOs included in Equilar’s data, 25 were women.
Lisa Su, CEO and chairman of the board of chipmaker Advanced Micro Devices, was the highest-paid female CEO in the AP survey for the fifth year in a row in fiscal 2023, netting compensation worth $30.3 million – close to her compensation package in 2022. Her overall rank rose from 25 to 21.
The other highest-paid female CEOs include Mary Barra of automaker General Motors ($27.8 million); Jane Fraser of banking giant Citigroup ($25.5 million); Kathy Warden of aerospace and defense company Northrop Grumman Corp. ($23.5 million); and Carol Tome of package delivery company UPS Inc. ($23.4 million).
The average pay package for female CEOs rose 21% to $17.6 million. That’s better than the men fared: their average pay package rose 12.2% to $16.3 million.
—
Ortutay reported from San Francisco. Reporters Stan Choe and Ken Sweet contributed.
