Published: Tuesday, June 4, 2024
NEW YORK – The average compensation package for CEOs of companies listed in the S&P 500 jumped by nearly 13%, far exceeding the gains made by workers during a period when inflation put a lot of pressure on American budgets.
Equilar analyzed data for The Associated Press and found that the median compensation package for CEOs increased to $16.3m, an increase of 12.6%. The wages and benefits of private sector workers have risen by 4.1% between now and 2023. In half of the companies that participated in AP’s annual salary survey, the employee at the middle level of the pay scale would need to work for almost 200 years before they could earn what the CEO earned.
In this post-pandemic environment, boards want to reward and retain their CEOs when they believe they have a strong leader. Kelly Malafis is the founding partner of Compensation Advisory Partners, a New York-based firm.
The AP CEO Compensation Survey included data on 341 executives of S&P 500 companies that filed proxy statements between January 1 and April 30, who had served their companies for at least two consecutive full fiscal years.
Hock Tan is the CEO of Broadcom and he topped the AP pay survey with a package worth about $162m.
Tan received stock awards worth $160.5m from Broadcom on October 31, 2022 for the 2023 fiscal year. Tan has the chance to earn up 1 million shares beginning in fiscal 2025 if Broadcom stock meets certain goals and he stays CEO for 5 years.
Broadcom stock traded at $470 when the award was given. Since then, the stock has soared to an all-time record high of $1436.17. This was reached on May 15, 2015. Tan will be entitled to the full amount if, between October 2025-2027, the closing average price of the stock is $1.125 or higher for 20 consecutive trading days.
Broadcom stated that, under Tan, its market value increased from $3.8 Billion in 2009 to $645 Billion (as at May 23). It also noted that the total shareholder return over that period easily exceeded that of S&P 500.
Hamid Moghadam, CEO of Prologis Inc., is ranked second in the AP survey ($50.9million), followed by Tim Cook, Apple Inc.’s CEO ($63.2million) and Ted Sarandos (co-CEO, Netflix, $49.8million).
Lisa Su, CEO at Advanced Micro Devices and chipmaker, was named the highest-paid female CEO for the fifth consecutive year in the AP survey in fiscal 2023. Her compensation package, valued at $30,3 million, remained the same as her 2022 compensation package. Her overall ranking rose from 25 to 21.
According to the Labor Department, workers across the nation have seen their wages rise since the pandemic. Wages and benefits for employees in the private sector will increase by 4.1% in the year 2023, after an increase of 5.1% in the previous year.
Even with these gains, the gap between those in the corner office versus everyone else continues to widen. In this year’s survey, half of the CEOs made at least 19 times as much as their median employee. This is up from 185 in the last survey.
The gap between the earnings of the CEO and workers wasn’t always as wide.
According to Brandon Rees from the AFL-CIO’s Executive Paywatch, which tracks CEO compensation, after World War II, and until the 1980s CEOs of publicly traded large companies earned about 40-50 times more than the average worker.
Rees stated that “the (current) ratio of pay signals a kind of winner-takes-all culture. That companies treat their CEOs like, you know as superstars instead, rather than team players.”
Despite criticism, the majority of shareholders support pay packages for leaders. According to Equilar data, from 2019 to 2023 companies received an average of just under 90% for their executive compensation plan.
Sometimes, shareholders do reject compensation plans, but the votes are not binding. In 2023 shareholders of 13 companies from the S&P 500 gave less than 50% support to the compensation package.
Sarah Anderson, the director of the Global Economy Project of the progressive Institute for Policy Studies said that Say on Pay votes were important because “they shine a light on some of most egregious instances of executive access and can lead to negotiation over pay and other concerns that shareholders may want to raise with the corporate leadership.”
Netflix held a meeting with its largest shareholders to address their concerns after its investors again voted down the pay packages of its top executives.
Netflix has announced several changes in its pay policy following the discussions. One of the changes was that executives no longer had the option to choose between cash or options for their compensation. Stock options will no longer be given out, which could give executives a payout as long as stock prices stay above a certain threshold. The company will instead give restricted stock, which executives can only profit from after a set period of time or if certain performance metrics are met.
Changes will be implemented in 2024.
Anderson argues that, more broadly, the votes on pay haven’t had a major impact. “I don’t think that the overall size and impact of CEO packages have had much impact in some cases.”
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Ortutay reported live from San Francisco. Stan Choe, Ken Sweet and other reporters contributed.