CEOs Earn 200 Times More Than Their Workers Last Year

08:35 June 8, 2024

CEOs Earn 200 Times More Than Their Workers Last Year

The top leaders of the biggest U.S. companies had their pay increase by about 13 percent in 2023.

Pay for workers at the same companies rose by only 4.1 percent.

Those numbers come from the Associated Press (AP) and the financial research company Equilar. They compared pay for more than half of the chiefs of a list of top companies called the S&P 500 with other average workers at the same companies.

At half of the companies that AP and Equilar studied, it would take the average worker almost 200 years to make what the chief executive officer made in one year. Company chiefs received pay gains as the U.S. economy showed strength in 2023. Over 20 of the company leaders received a pay increase of 50 percent or more.

Kelly Malafis is one of the founders of Compensation Advisory Partners in New York City. The company advises businesses on what to pay their top leaders.

Malafis said companies want to reward and keep their chiefs if they have a good leader in place.

“That all combined kind of leads to increased compensation,” she said.

Some of the leaders who had high compensation compared to average workers included Ted Sarandos of Netflix and Tim Cook of Apple. Cook’s pay was over $63 million. For Sarandos, his pay was almost $50 million.

Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies in Washington D.C. She said the earnings gap leads to bad feelings about the American economy.

She said many people are worried about inflation - the rising prices for things such as food, housing and gasoline. In addition, she said, “they’re feeling the pain of inflation more because they’re not seeing their wages go up enough.”

The study shows that a number of companies decided to link pay raises to company performance. As a result, the increases come in the form of stock awards that the leaders cannot sell for several years. Many of the pay packages prevent a stock sale unless the company reaches targets such as greater market value. Median stock awards went up 11 percent last year while performance increases only rose 2.7 percent.

The AP’s study included the pay of 341 executives at companies in the S&P 500. It only included leaders who had been in their positions for at least two full years.

Hock Tan of the software and semiconductor company Broadcom earned the most – about $162 million. Tan was born in Malaysia. His pay package includes a number of increases based on the company’s stock price. At the time the package was set, the company’s share price was $470, now it is well above $1000. He will get a number of bonuses if the price remains above $1,125 between October 2025 and October 2027.

Much of Broadcom’s success comes from the current interest in AI, or artificial intelligence.

Another company leader, Elon Musk of Tesla, is in the middle of a legal case related to his pay. Musk wants the company’s shareholders to restore a pay package that was restricted by a judge in Delaware. The company agreed to a stock package worth $2.3 billion in 2018 but it is now estimated to be worth about $45 billion.

Lack of equality

Some workers in clothing or food stores make very little money. In some cases, they do not work full time. One clothing seller in the U.S. is Ross Stores. Its leader is Barbara Rentler. She made $18.1 million last year. Some part-time workers make less than $9,000.

Malafis said many companies that are doing well do not want to have their leader leave. As a result, they pay based on what other large companies pay and do not consider the difference between the chief, or CEO, and the average worker.

Research shows that during the 40 years after the end of World War II, executives earned about 40 to 50 times more than their employees. After the 1980s, the compensation structure started to change.

Brandon Rees is a deputy director for the AFL-CIO, a group of labor unions. Rees said, “The (current) pay ratio signals a sort of a winner-take-all culture, that companies are treating their CEOs as, you know, superstars as opposed to, team players.”

Even with the criticism, shareholders usually approve the pay deals. Most shareholder votes between 2019 and 2023 showed nearly 90 percent approval. Even if the vote shows shareholders are not happy with the executive’s pay, the company’s board can overrule the shareholders.

That is what happens in most cases. However, investors rejected the pay deal for Netflix’s top leaders. That resulted in the media company making some changes. Top leaders Sarandos and Greg Peters will be paid in 2024 with stock that has restrictions about when it can be sold.

Anderson from the Institute for Policy Studies said the pay votes can be helpful because they “shine a light on” pay that is too much. However, she said, the votes do not result in big changes most of the time.

The pay study also gave information about women CEOs. In 2023, the top-paid female CEO was Lisa Su of the computer chip maker AMD. She received just over $30 million in compensation. Other top earners were Mary Barra of carmaker General Motors, Jane Fraser of bank group Citigroup and Kathy Warden of defense company Northrop Grumman. They earned between $23 million and $28 million in 2023.

Overall, the pay for female leaders went up 21 percent while the pay for men went up 12 percent.

I’m Dan Friedell. And I’m Jill Robbins.

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