Average CEO earnings soar to $21.3 million

Fueled by stocks, pay may keep rising despite recession.

Fueled by a surging stock market, CEO compensation climbed to its highest level in seven years last year and could be poised to rise again in 2020, despite the widespread layoffs and pay cuts of the coronavirus recession.

The Economic Policy Institute, a left-leaning think tank, found that chief executives of America’s 350 largest companies earned an average of $21.3 million in realized compensation in 2019.

Details about CEO pay lag because they are shared in corporate proxy statements, which are typically released early the following year before many companies’ spring annual meetings. As a result, the lofty numbers have landed during a time when the pandemic has devastated the labor market and income inequality has become an election campaign issue.

“CEOs are not doing well just because they’re at the high end, they’re doing far better than everyone else at the high end,” said Larry Mishel, senior labor economist at EPI.

Many companies have said their CEOs and other top executives would take pay cuts in 2020 as the coronavirus pandemic slashed financial forecasts and companies had to furlough or lay off workers.

But Mishel said many people don’t understand that base salary and annual cash bonuses make up a relatively small proportion of the overall pay package for many chief executives. “CEO compensation over the last few decades has pretty well tracked the stock market, because around 75% of CEO compensation is stock awards and stock options,” Mishel said.

Boards of directors argue that CEO pay is tied to the stock market to align executives’ interests with shareholders’, but Mishel said broader economic trends or policy changes, such as tax cuts, can lift company shares for reasons outside of individual CEO decisions.

A July analysis by CGLytics, a corporate governance data firm, found that of the 419 companies in the Russell 3000 index that had shared details about CEO salary cuts, two-thirds took reductions that equaled just 10% or less of their 2019 compensation.

That’s why Mishel believes it’s possible that CEO pay could rise in 2020 as the stock market has recovered and is flirting with record highs. If that happens, it would mark a divergence from the last two recessions when CEO pay fell, according to EPI data, in 2001 and 2002 after the high water mark in 2000, and in 2008 and 2009, amid the financial crisis.

Robin Ferracone, CEO of executive compensation consultancy Farient Advisors, said that while a rise in average 2020 pay for CEOs is possible, it will probably be flat or a little down at the average. In addition to salary cuts and likely lower annual bonuses, many long-term stock incentives for CEOs are called “performance shares,” which are tied to underlying financial metrics that are likely to worsen for many companies.

Still, she said, compensation committees will need to be mindful about how results will resonate with employees, outsiders and investors. “If a median worker feels prosperous and that they’ve been treated pretty well, they’re fine with the CEO taking home millions upon millions,” she said. “The problem is when the median worker is no longer feeling prosperous. … That is going to be the test this year.”

PEXELS Details about CEO pay lag because they are shared in corporate proxy statements, which are typically released early the following year.