CEOs get $800K pay raise, leaving workers in the dust
Did you get a 7% raise last year? Congratulations, yours was in line with what CEOs at the biggest companies got. But for chief executives, that 7% was roughly $800,000.
Pay for CEOs at S&P 500 companies rose to a median of $12 million last year, including salary, stock and other compensation, according to data analyzed by Equilar for The Associated Press. The eight-figure packages continue to rise as companies tie more of their CEOs’ pay to their stock prices, which are still near record levels, and as profits hit an all-time high last year due to lower tax bills and a still-growing economy.
Pay for typical workers at these companies isn’t rising nearly as quickly. The median increase was 3% last year, less than half the growth for the top bosses. Median means half were larger, and half were smaller.
The survey showed that it would take 158 years for the typical worker at most big companies to make what their CEO did in 2018, seven years longer than if both were still at 2017 pay levels. And when top executives are already making so much more than their employees, the bigger percentage raises compound the widening financial gap.
Anger about widening income inequality is rising around the world, from Capitol Hill to protests in streets. But it’s only slowly seeping into the conference rooms where boards of directors set the pay for CEOs. Boards are often more concerned with what a competitor may pay to poach their CEO than how much more that per
THERE’S A BELIEF THAT IF WE UNDERPAY OUR CEO, THEY CAN GO WORK IN PRIVATE EQUITY. THEY CAN GO WORK FOR A COMPETITOR. THEY WILL FIND PLACES TO GO.
Eric Hosken, a partner at Compensation Advisory Partners
son makes versus the rest of the workforce.
“It’s a natural thing for a CEO and a board to say, ‘How are others who are doing similar work paid?’ And there’s a natural sense that if the board believes and supports their CEO, they don’t expect their CEO to be paid less than the others in the industry,” said Eric Hosken, a partner at Compensation Advisory Partners, a consulting firm that works with boards.
Investors — the ultimate corporate bosses who have the power to vote directors off the board — also continue to vote overwhelmingly in favor of executive pay packages at the biggest companies, though the margins have been decreasing.
“There’s a belief that if we underpay our CEO, they can go work in private equity. They can go work for a competitor. They will find places to go,” Hosken said.
The AP’s CEO compensation study included pay data for 340 executives at S&P 500 companies who have served at least two full consecutive fiscal years at their companies, which filed proxy statements between Jan. 1 and April 30.
This is the second year that the government has required companies to show how pay for top bosses compares with the pay for their typical worker. The measure is far from perfect, mostly because companies have a lot of flexibility in how to calculate the numbers.
Comparisons between companies can also be meaningless when one has mostly part-time workers in developing countries while the other has office parks full of Ph.D.s in Silicon Valley. But now that companies have submitted two years of data, investors can see how the gap in pay is trending at individual companies.
At more than 40% of the companies in this year’s survey, the CEO’s pay rose by at least double the percentage of the median worker’s pay gain.
Across the economy, pay is climbing at a faster rate for workers, but the gains are still below where they usually are when the economy is this healthy. Average hourly pay rose 3.4% in February from a year earlier, the largest annual gain in a decade. Companies find that they have to pay more to hold on to staff after the unemployment rate dropped to a nearly 50-year low.