CEO pay up 17% as profits, stocks soar

Even when regular workers win their biggest raises in decades, they look minuscule, compared with what CEOs are getting.

The typical compensation package for chief executives who run S&P 500 companies soared 17.1 per cent last year, to a median US$14.5 million, according to data analysed for The Associated Press by Equilar.

The gain towers over the 4.4 per cent increase in wages and benefits netted by private-sector workers through 2021, which was the fastest on record going back to 2001. The raises for many rank-and-file workers also failed to keep up with inflation, which reached 7.0 per cent at the end of last year.

CEO pay took off as stock prices and profits rebounded sharply as the economy roared out of its brief 2020 recession. Because much of a CEO’s compensation is tied to such performance, their pay packages ballooned after years of mostly moderating growth.

In many of the most eye-popping packages, such as Expedia Group’s, valued at US$296.2 million and JPMorgan Chase’s US$84.4 million, boards gave particularly big grants of stock or stock options to recently appointed CEOs navigating their companies through the pandemic or to established leaders they wanted to convince to hang around.

The CEOs often can’t cash in on such stock or options for years, or possibly ever, unless the company meets performance targets. But companies still must disclose estimates for how much they’re worth. Only about a quarter of the typical pay package for all S&P 500 CEOs last year came as actual cash they could pocket.

Whatever its composition, the chasm in pay between CEOs and the rank-and-file workers they oversee keeps widening. At half the companies in this year’s pay survey, it would take the worker at the middle of the company’s pay scale at least 186 years to make what their CEO did last year. That’s up from 166 a year earlier.

At Walmart, for example, the company said its median associate made US$25,335 in compensation last year. That means half its workers made more, and half made less.

That’s up 21 per cent from US$20,942 a year earlier and came as the company’s average hourly wage for US associates rose from US$14.50 in January 2021 to more than US$17 currently. That increase was bigger than the raise CEO Doug McMillon got, on a percentage basis. But his 13.7 per cent raise netted him a total package valued at US$25.7 million.

Anger is growing over such an imbalance. Surveys suggest Americans across political parties see CEO pay as too high, and some investors are pushing back.

Workers are trying to organise unions across the country, and the ‘Great Resignation’ has emboldened millions to quit to find better jobs elsewhere. The United States government counted more than four million quits during April 2021 alone, the first time that happened. The monthly number has since topped 4.5 million twice.

“That is going to add a huge cost to corporate bottom lines, to have these kind of turnover rates,” said Sarah Anderson, director of the global economy project at the progressive Institute for Policy Studies.

“They should be thinking about what kind of message they’re sending to those people, about whether they’re really valued in their jobs,” Anderson said. “When the guy in the corner office is making several hundred, if not thousands, of times more, that’s sending a really demoralising message.”

Gains for CEO pay had been slowing in recent years, with the median rise easing from 8.5 per cent in 2017 to 4.1 per cent in 2019. It ticked back up to 5 per cent in 2020, which was a complicated year because the pandemic shut down the economy and profits at many companies tanked.

For 2020, many companies rejiggered the intricate formulas they created to determine their CEOs’ pay. The tweaks made up for losses caused by the pandemic, something many boards said was an extraordinary event outside the CEO’s control.

Then came 2021. Thanks to a reopened economy, super-low interest rates from the Federal Reserve and other factors, stock prices soared and the S&P 500 jumped nearly 27 per cent, setting records through the year. Earnings per share soared roughly 50 per cent.

Throughout the year, CEOs had to navigate snarled supply chains and shortages of chips and other key materials that impacted businesses across industries, said Dan Laddin, a partner at Compensation Advisory Partners, a consulting firm that works with boards.

“All this led to a desire to really reward” executives, said Kelly Malafis, also a partner at Compensation Advisory Partners, “because the financial performance was there, and the view was that management teams were exceptional in navigating the situation and delivering results.”

Last year’s 17.1 per cent leap for median pay of S&P 500 CEOs was the biggest since a 23.9 per cent surge for 2010 compensation packages, according to the data analysed by Equilar.

Consider Marry Barra, CEO of General Motors. Her industry was particularly hard hit by the shortage of computer chips, which snarled auto production.

Even so, GM’s board highlighted how the company still delivered record earnings before interest, taxes and some other items. The automaker also accelerated development of its electric vehicles. Those are two of the factors that influence Barra’s pay, and her compensation climbed 25.4 per cent to US$29.1 million.

“I would hope that the corporation making record profits would recognise that the workers doing the work are the ones generating the revenue,” said Dave Green, a hot metal driver at a GM facility in Bedford, Indiana. “We’re just trying to get by.”

He cited in particular temporary workers making roughly US$16 hourly, who have to work years before coming on as full-time employees and don’t get many opportunities for days off in the meantime.

“The new people coming in, their kids are not going to be able to have the opportunities my kids had,” said Green, who has two daughters and started at GM as a summer helper in 1989.

Closer to the top of the rankings for CEO pay last year was JPMorgan Chase’s Jamie Dimon, whose compensation package, valued at US$84.4 million, was the fifth-highest in the AP survey. That was up 166.7 per cent from a year earlier, and most of it came from an award of stock options valued at US$52.6 million.

The board said it provided the options because of its desire for Dimon, who is 66, to keep leading the company for significantly more years and a “unique inflection point in Mr Dimon’s tenure”. It also said the options weren’t a part of his regular annual compensation, and that he must wait at least five years to begin exercising them.

Even so, only 31 per cent of investors at JPMorgan Chase’s annual meeting of shareholders recently gave a thumbs up on Dimon’s pay package. The vote is only advisory, though, and doesn’t force the company to make changes.

The AP’s and Equilar’s compensation study included pay data for 340 CEOs at S&P 500 companies who have served at least two fiscal years at their companies, and which filed proxy statements between January 1 and April 30.

Some high-profile CEOs are not included because they don’t fit the criteria, such as Amazon’s Andy Jassy and Twitter’s Parag Agrawal. The survey does not count changes in the value of CEOs’ pension benefits and some other items in its totals for compensation.

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AP