January 22, 2020
TSR vs. CEO Pay: Which Grows Faster?
– Liz Dunshee
There’s a lot of attention lately to the fact that CEO pay growth is outpacing the growth of “average” worker pay. Maybe if companies are moving away from “shareholder primacy,” that’s a fair thing to focus on – but if you’re looking at shareholders and their retirement accounts, there’s not a lot to complain about, at least in recent years (see this blog for data over a 40-year time period). According to this “Harvard Law” blog, from 2014 to 2018:
– Median CEO pay growth (as reported in Summary Compensation Tables) was 23% for S&P 500 companies – compared to 50% growth in total shareholder return
– In the commercial banking industry, median CEO pay growth was 31% – compared to TSR growth of 40%
– In the retail industry, median CEO pay growth was 1% – compared to TSR growth of 49%
– In the computer software industry, median CEO pay growth was 59% – compared to TSR growth of 141%
The blog also offers these conclusions:
– CEO pay growth, at most public companies, is not closely correlated with TSR performance (the “pay-for-performance” rule proposed by the SEC in 2015 – SEC Release No. 34-74835 – has not yet been adopted)
– Over the 2014-2018 period, at S&P 500 companies and at the companies in the three industries examined (commercial banking, retail & computer software), the median CEO pay growth trailed TSR performance
– CEO pay decisions at most public companies reflect a variety of facts and circumstances that go beyond TSR performance