The typical compensation package for chief executives who run companies in the S&P 500 rose nearly 13% last year, far outpacing gains for workers at a time when inflation was putting significant pressure on Americans' budgets
CEOs got big raises in 2023, widening the gap with the workers they overseeThe typical compensation package for chief executives who run companies in the S&P 500 rose nearly 13% last year, far outpacing gains for workers at a time when inflation was putting significant pressure on Americans' budgetsNEW YORK (AP) — The typical compensation package for chief executives who run companies in the S&P 500 rose nearly 13% last year, far outpacing gains for workers at a time when inflation was putting significant pressure on Americans' budgets.The median compensation package for CEOs rose to $16.3 million, up 12.6%, according to data Equilar analyzed for The Associated Press. Meanwhile, private-sector workers' take-home pay and benefits rose 4.1% through 2023. At half of the companies in this year's pay survey, it would take a worker in the middle of the company's pay scale nearly 200 years to earn what their CEO earned.CEOs have been rewarded as the economy has shown remarkable resilience, underpinning strong profits and boosting stock prices. After weathering the pandemic, companies have faced challenges from persistent inflation and higher interest rates. About two dozen CEOs in the AP's annual survey received a raise of 50% or more."In this post-pandemic market, there is a desire for boards to reward and retain CEOs when they feel they have a good leader on their side," said Kelly Malafis, founding partner of Compensation Advisory Partners in New York. "All of this adds up to higher compensation."But Sarah Anderson, director of the Global Economy Project at the progressive Institute for Policy Studies, believes the pay gap between top executives and workers contributes to Americans' overall dissatisfaction with the economy."The biggest focus here is inflation, which people are really feeling, but they're feeling the inflation pain even more because their pay isn't increasing enough," she said.Many companies have heeded shareholder calls to tie CEO pay more closely to performance. As a result, a large portion of compensation packages consist of stock awards that the CEO often cannot cash in or only partially cash in for years unless the company hits certain goals, usually a higher stock price or market value or improved operating profits. The average stock award rose nearly 11% last year, compared with a 2.7% increase in bonuses.The AP's CEO compensation study included pay data from 341 executives at S&P 500 companies who worked at their companies for at least two full fiscal years in a row and filed proxy statements between Jan. 1 and April 30.Top earnersHock Tan, the CEO of Broadcom Inc., topped the AP survey with a pay package worth about $162 million.Broadcom granted Tan stock grants worth $160.5 million on Oct. 31, 2022, for the company's fiscal 2023 year. According to a securities filing, Tan was given the opportunity to earn up to 1 million shares starting in fiscal 2025, assuming Broadcom stock hits certain targets -- and he remains CEO for five years.At the time of the grant, Broadcom stock traded at $470. Tan would receive portions of the stock grants if the stock hits $825 and $950, and the full grant if the average closing price is at or above $1,125 for 20 consecutive days between October 2025 and October 2027. The targets seemed ambitious when they were set, but the stock has risen sharply since then, hitting a historic closing high of $1,436.17 on May 28.Like rival Nvidia Inc., Broadcom is riding the current artificial intelligence wave among technology companies. Its chips are used by businesses and public entities, including major banks, retailers, telecom providers and government agencies.In awarding the stock award, Broadcom pointed out that its market value had risen from $3.8 billion in 2009 to $645 billion as of May 23 under Tan and that its total return to shareholders during that time had far exceeded that of the S&P 500. It also said Tan will not receive any further stock awards during the remaining five-year period.Other CEOs topping the AP survey include Fair Isaac Corp.'s William Lansing ($66.3 million); Apple Inc.'s Tim Cook ($63.2 million); Prologis Inc.'s Hamid Moghadam ($50.9 million); and Netflix co-CEO Ted Sarandos ($49.8 million).At Apple, Cook's compensation represented a 36% drop from last year. Cook requested a pay cut for 2023 in response to a vote at Apple's 2022 annual meeting, where only 64% of shareholders approved his pay package.The survey's methodology excluded CEOs such as Palo Alto Networks' Nikesh Arora ($151.4 million) and Charter Communications' Christopher Winfrey ($89 million).Although securities filings show Elon Musk received no compensation as CEO of Tesla Inc., his salary at the electric car maker is currently the focus of attention. Musk is asking shareholders to restore a compensation package that was rejected by a Delaware judge who said the approval process for the package was "deeply flawed." The compensation, mostly stock awards worth $2.3 billion when granted in 2018, is now valued at around $45 billion.CEO pay vs. employeeWorkers across the country have seen higher salaries since the pandemic, with wages and benefits for private sector workers set to rise 4.1% in 2023, according to the Labor Department, after a 5.1% increase in 2022.Despite these gains, the gap between the person in the corner office and everyone else is widening. Half of the CEOs in this year's salary survey earned at least 196 times what their average employee earned. That's up from 185 times in last year's survey.The gap is especially wide at companies where workers typically earn lower wages, such as retail. At Ross Stores, for example, the company reported that its employee in the middle of the pay scale was a part-time retail store employee who made $8,618. To earn that much, it would take 2,100 years to reach CEO Barbara Rentler's 2023 salary, worth $18.1 million. A year earlier, it would have taken the average worker 1,137 years to reach the CEO's salary.Corporate boards often feel pressured to keep raising pay for high-performing CEOs for fear that they will leave the company and earn more at a competitor. They focus on paying salaries that are competitive in their industry or market, not on the pay ratio, Malafis said. The better an executive performs, the more the board is willing to pay.The gap between what the CEO makes and what workers make wasn't always so wide.After World War II and into the 1980s, CEOs of large publicly traded companies earned about 40 to 50 times the average worker's salary, said Brandon Rees, deputy director of corporate and capital markets at the AFL-CIO, which runs an Executive Paywatch website that tracks CEO pay."The (current) pay ratio signals a kind of winner-take-all culture, that companies treat their CEOs like superstars rather than team players," Rees said.A say in compensationDespite the criticism, shareholders tend to overwhelmingly support compensation packages for corporate leaders. From 2019 to 2023, companies typically received just under 90% of the vote on their executive compensation plans, according to data from Equilar.However, shareholders occasionally reject a compensation plan, although the votes are not binding. In 2023, shareholders of 13 companies in the S&P 500 gave less than 50% approval to executive compensation packages.After its investors again categorically rejected the compensation packages for its top executives, Netflix met with many of its largest shareholders last year to discuss their concerns. The company also spoke with major proxy advisory firms that are influential because they recommend investors how to vote at companies' annual shareholder meetings.Following the talks, Netflix announced several changes to revamp its compensation policy. For example, it eliminated the ability of executives to split their compensation between cash and options. It will no longer issue stock options that can earn executives a salary as long as the stock price stays above a certain level. Instead, the company will issue restricted shares that executives can only benefit from after a certain period of time or after meeting certain performance metrics.The changes will take effect in 2024. For the last year, co-CEO Ted Sarandos received options worth $28.3 million and a cash bonus of $16.5 million. Co-CEO Greg Peters received options worth $22.7 million and a cash bonus of $13.9 million.Anderson, of the Institute for Policy Studies, said say-on-pay votes are important because they "bring some of the most egregious cases of executive access into the spotlight and can lead to negotiations on pay and other issues that shareholders may want to discuss with company leadership.""But I think the impact, at least on the overall size of CEO packages, hasn't made much difference in some cases," she said.Female CEOsMore women participated in the AP survey than in previous years, but their numbers in the corner offices are still minuscule compared to their male counterparts. Of the 342 CEOs in Equilar's data, 25 were women.Lisa Su, CEO and chairman of chipmaker Advanced Micro Devices, was the highest-paid female CEO in the AP survey for the fifth year in a row in fiscal 2023, earning compensation worth $30.3 million — unchanged from her 2022 compensation package. Her overall ranking rose from 25th to 21st.The other highest-paid female CEOs include Mary Barra of automaker General Motors ($27.8 million); Jane Fraser of banking giant Citigroup ($25.5 million); Kathy Warden of aerospace and defense contractor Northrop Grumman Corp. ($23.5 million); and Carol Tome of package delivery company UPS Inc. ($23.4 million).The median pay package for female CEOs rose 21% to $17.6 million. That's better than men: Their median pay package rose 12.2% to $16.3 million.