Benjamin Franklin’s renowned axiom from 1789, “In this world nothing can be said to be certain except death and taxes,” retains its relevance in contemporary society. However, if Franklin were to reflect on the present era, he might include the ever-escalating CEO compensation among the inevitable facets of life.
A recent study by the pay consulting group Equilar unveils staggering figures: the median pay for America’s top chief executive officers surged to a record $23.7 million in 2023, marking an 11.4% increase from the previous year. This uptick in CEO compensation outpaces both the 3.4% inflation rate in 2023 and the 4.3% gain for the average worker. Equilar’s study encompasses data from companies with revenues exceeding $1 billion, derived from proxies filed to the Securities and Exchange Commission by March 31, reflecting the figures of 2023.
Jonas Johnson, the vice president of research at the compensation consulting firm Economic Research Institute, acknowledges this trend of substantial salary hikes for CEOs. However, he sounds a note of caution, emphasizing that this pattern of exponential growth in CEO compensation cannot persist indefinitely without consequences.
At the zenith of Equilar’s list sits Broadcom CEO Hock Tan, whose total compensation ballooned to a staggering $161.8 million in 2023, with the lion’s share stemming from a substantial stock grant. Indeed, stock awards have emerged as the linchpin of CEO compensation, constituting 64.6% of total compensation on average. The median value of stock awards saw a remarkable surge of 20% compared to the previous year, with several CEOs clinching nine-figure award packages.
However, before hastily condemning these astronomical CEO paychecks, it’s imperative to consider a critical nuance: the 11.4% increase in CEO pay lags behind the 13.8% total return to shareholders generated by these companies last year. Over the past six years, CEO pay has ascended at an average annual rate of 8.77%, while the total annual average return for these companies stands at 12.02%. This suggests that some shareholders might be securing their CEOs at a relative bargain.
For instance, Broadcom’s Tan, despite clinching the title of the highest-paid CEO, has presided over a remarkable surge in shareholder value, with the company’s shares skyrocketing by 2,005% over the past decade. This underscores the intricate interplay between CEO compensation and shareholder returns.
The widening chasm between CEO pay and median employee pay has sparked concerns regarding income inequality and corporate governance. Senator Bernie Sanders has proposed taxing companies that remunerate their CEOs more than 50 times the average employee’s salary, a move that would reverberate across every company on Equilar’s list.
While CEO compensation continues to be scrutinized, it serves as a focal point for discussions on fairness, transparency, and accountability within organizations and society at large. As Franklin sagely opined, “Money never made a man happy yet, nor will it.” Nevertheless, the multimillion-dollar paychecks of today’s CEOs seem to be far from inducing unhappiness.