A new study by Equilar, a research firm that provides data on executive compensation, has revealed a disquieting reality in US companies with revenue of $1 billion or more. The median pay for the top 100 CEOs in these companies surged to a record high of $22.3 million in 2023, marking a 7.7% increase from the previous year. In this article, we will examine the report by Equilar and discuss the various factors contributing to the rise in CEO pay.
CEO pay rises to record high
The Equilar report has revealed that the median pay for the top 100 CEOs in US public companies rose to $22.3 million in 2023, a record high that marks a 7.7% increase from the previous year. The study found that the pay gains were driven mainly by stock awards, which have become a centerpiece of executive compensation but are not as popular for employees.
Stock awards driving CEO pay gains
Equilar’s study revealed that the median value of CEO stock awards rose 20% to $13.8 million in 2023. The increase in stock awards has become a major contributing factor in the surge of CEO pay. However, employees are less likely to receive this kind of compensation, and their pay remains significantly below that of executives. The report shows that the concentration of wealth among executives only exacerbates the growing income inequality gap.
CEO Pay Rises Despite Negative S&P 500 Return
The rise in CEO pay comes despite the fact that the S&P 500 posted a negative 18% total return in 2022. The negative performance of the markets has not deterred companies from compensating their top executives, most likely due to contractual obligations, bonuses tied to financial metrics, or a desire for institutional affiliations with the highest-circulating “top earners” lists. Furthermore, the lack of oversight from regulatory bodies and corporate boards allows for the unchecked increase in executive pay.
CEO Stability and Incentivization
During tough times, companies often look to keep their top leaders in place. The report states, “You want stability of leadership to guide you through tough times.” As part of the incentive plan, the company gives executives stock options, which are supposedly tied to their performance, to encourage them to stay for a longer period. For instance, using incentive awards, salaries, bonuses and other forms of compensation to attract and retain key executives through broader market fluctuations. Due to these practices, the compensation of executives continued to grow, spiraling upwards, irrespective of the overall company performance.
Pay Ratio Increases
Increased wealth at the top is another factor contributing to the growing pay gap in the US. The higher gains of CEOs have pushed the median “pay ratio” at companies led by the CEOs studied by Equilar to 288 times the pay of their median employee. This statistic is alarming, considering low- to middle-income employees who often earn lower wages, receive poor benefits, and have fewer opportunities for career advancement.
Average weekly earnings for US private sector employees
According to the US Bureau of Labor Statistics, the average weekly earnings for US private sector employees were $1,132 in December 2022, up 3.6% from a year earlier. In contrast, the median CEO salary is a staggering 19 times the average weekly earnings of an employee in the private sector. It should also be noted that the pay comparison can vary depending on geographies or industries, with high salary fluctuations across sectors.
CEOs with the Biggest Pay Increases in 2022
The Equilar report has found that the CEOs of Jefferies Financial Group and Prologis Inc. were the two CEOs receiving the biggest pay increases in 2023. The report disclosed that Richard Handler of Jefferies Financial Group received a total of $110.5 million, a 320% increase from the previous year, while Thomas S. Olinger of Prologis Inc. received $74.9 million, a 267% increase from the previous year. These numbers demonstrate how excessive CEO compensation can become a burden to shareholders, especially if company performance does not correspondingly improve.
In conclusion, the Equilar report paints a somewhat bleak picture of the state of compensation of top executives in US public companies. The compensation packages awarded to CEOs have hit record highs, with stock awards driving these increases. Despite significant negative performance by the S&P 500, the trend to incentivize, the lack of oversight, and concentration of wealth toward an elite group of executives has persisted. The pay ratio between median employees and CEOs has increased, adding to the current debate on income inequality. Overall, this trend portrays modern capitalism as a system designed to enrich only a privileged few.