The Advisors' Blog

This NYT article analyzes whether execs are receiving outsized stock awards that end up widening the gap between CEOs and ordinary workers. It focuses on the 200 highest-paid CEOs – 8 of whom earned more than $100 million in total compensation last year. Here’s an excerpt:

CEOs in the survey received 274 times the pay of the median employee at their companies, compared with 245 times in the previous year. And CEO pay jumped 14.1 percent last year compared with 2019, while median workers got only a 1.9 percent raise.

Last year’s colossal awards sprouted from a well-developed corporate compensation culture, in which boards, consultants and executives preach the gospel of “pay for performance,” which typically links CEO compensation to the company’s stock price. But this approach can lead to enormous payouts if stocks go up. The S&P 500 returned nearly 18 percent in 2020, including dividends, and CEOs reaped handsome rewards. But the question is, how much do they really deserve?

“They are emphasizing performance equity awards so much and ignoring how big they are,” said Michael Varner, director of executive compensation research at CtW Investment Group. “This is one of the chief culprits of the continuing rise in executive pay over the decades.”

The article spends quite a few paragraphs focusing on big payouts that CEOs can achieve if the stock price performs over a long period. You can feel the companies’ frustration in having to respond to some of these media inquiries – explaining repeatedly that the execs don’t actually get the payout until they achieve the milestones, or pointing to SEC filings that say that. But at the end of the day, if activists and others have decided that the company is contributing to inequality, it’s very difficult to communicate a $5 billion award in an appeasing way.

– Liz Dunshee