IT’S good to be the boss.
The work can be demanding and full of stress. But you get paid more than everybody else – vastly more, as the latest numbers remind us.
We know how much more bosses are paid because every year, thanks to the US’ Dodd-Frank Act of 2010, publicly traded US companies must reveal to their shareholders a trove of information about the compensation of top executives. What’s more, companies must compare the rich earnings of their leaders with the pay of ordinary workers.
I’ve gotten used to poring over these figures year after year. For the leaders of corporate America, the sums almost always range from large to hard to believe.
Consider that the highest-paid CEO in this year’s report, compiled by executive compensation research firm Equilar, was Sundar Pichai of Google’s parent, Alphabet. He was awarded US$225,985,000 in 2022.
The median Googler earned $279,802, hardly starvation wages. Still, it would take the median employee 808 years to earn Pichai’s pay. Of course, no one lives 808 years, and job security isn’t what it once was. In January, Alphabet announced that it was laying off 12,000 employees.
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To be fair, Pichai hasn’t always earned that much money. The previous year, he was awarded US$6,322,599, a ratio of CEO-to-worker pay that was a far more modest 21. And Google provides a great public service. I used Google’s search to call up the executive compensation of Pichai and of other well-paid executives in the proxy statements their companies file each year.
It’s also true that Pichai’s 2022 pay wouldn’t have looked quite so colossal if he had received it a year earlier.
In 2021, the top earner in corporate America, according to Equilar, was Jeff Green, CEO of the Trade Desk, a digital advertising company, with US$835 million. The year before, it was Alexander Karp, CEO of Palantir, a data mining and artificial intelligence company that gets much of its revenue from government contracts. Karp was awarded a tidy US$1.1 billion.
These paydays – and the still Midas-like, though lesser, earnings of top executives this year – have become so common that it’s easy to become numb to them. Yet if you stop and think about it, you may find these numbers startling.
Consider that the S&P 500 dropped 19.4 per cent in 2022. Shareholders took a beating. Yet the median pay for a run-of-the-mill CEO (in their job for at least two years) was US$14.8 million, according to Equilar. That was 186 times the median employee’s pay, down slightly from 190 times the year before.
Still, it would take ordinary workers 186 years to earn what their CEOs were given in 2022 by directors who said they had the best interest of shareholders and, often, stakeholders like employees at heart.
For the best-paid CEOs in the US, the compensation numbers – and the discrepancy with what ordinary workers were being paid – were much greater. Equilar provides a list of the top 100 on its site.
Pichai was at the pinnacle for 2022. After him, the others in the top four were:
- Stephen Scherr of Hertz, the car rental company that is undergoing a turnaround after its bankruptcy during the pandemic, with awarded compensation of US$182,136,137. That was 4,983 times the pay of the median Hertz employee.
- Barry McCarthy of Peloton Interactive, which flourished during the stay-at-home period of the early pandemic but is now in need of revamping. He was awarded US$168,073,420, which was 2,299 times what the median employee was paid.
- Michael Rapino of Live Nation Entertainment, which owns Ticketmaster. He was awarded US$139,005,565 last year. The median employee earned just US$25,673. Rapino’s pay was bigger by a factor of 5,414. That’s greater than the difference between a mile and a foot.
Everyone has a limit when it comes to pay packages. This year, the shareholders of Live Nation evidently reached theirs.
In a rare rebuke to Rapino and to other richly paid top executives at Live Nation – Joe Berchtold, the second in command, was awarded US$52,356,095 in 2022 – a majority of shareholders voted in disapproval of executives’ compensation. Shareholders also voted overwhelmingly to hold “say-on-pay” votes at Live Nation every year, rather than only once every three years, as had been the company’s practice.
These extravagant pay packages came at an unfortunate time for Live Nation. As you may recall, the company has run into trouble in recent months.
In November, The New York Times reported that the Justice Department was investigating Live Nation for abuse of power in the live music business.
Shortly thereafter, the company’s Ticketmaster unit bungled the sale of Taylor Swift concert tickets, enraging millions of fans in what has widely been called a “fiasco” and a “debacle”. Outrage from Swifties led to congressional hearings, pressure on the company from the Biden administration and, in June, the shareholder revolt.
Executive pay packages often include stock options that won’t be collected by executives if the companies don’t reach set performance targets. In some cases, the numbers also include perks such as the use of corporate planes and security details. Thanks to Dodd-Frank, those in the US can now know more about top executive pay than about the pay of their coworkers.
For the first time, the rules require another set of numbers: “compensation actually paid” during the year. This is a seemingly straightforward concept that requires complex calculations. But basically, it includes the change in value of previously awarded stock options.
These numbers are also staggeringly high. For Pichai, his “compensation actually paid” in 2022 was US$115,820,786. For Scherr, it was US$132,128,569. Peloton’s proxy didn’t include this number for McCarthy. For Rapino, it was US$35,618,299.
So what should we make of high compensation levels, year after year?
I don’t object to CEOs earning more than I do, especially when, as a shareholder, I benefit when their decisions contribute to an increase in the value of company stock. And as a working guy, I’m pleased when CEOs help make me – and my fellow employees – more prosperous.
It’s the vast gap in pay that stops me.
To put the size of this disparity into perspective, consider that Peter Drucker, the economist and management guru who died in 2005, said that most workers understood that CEOs would be paid more. But he also cited studies that showed it felt “about right” when the CEOs received 10 to 12 times what workers earned.
It’s difficult to make precise comparisons with CEO-worker pay ratios of other eras, because the current methodology for calculating them wasn’t standardised until 2018.
But there’s no doubt that there was far less pay inequality in the US during the 1960s and 1970s. One study found that the pay ratio for big companies was less than 20 well into the 1970s. By 1989, it had reached the 40s, a level that Drucker found excessive.
In the 1990s, the Clinton administration, saying it would rein in executive pay, embarked on a major tax “reform” with unintended consequences.
By limiting the deductibility of executive compensation to US$1 million, while leaving a gaping loophole – stock options and bonuses tied to corporate performance – the policy contributed to the rise of outsize pay packages.
Drucker, a columnist for The Wall Street Journal, said CEOs should self-impose a “voluntary” limit on their pay, keeping it no higher than 20 times what the rank-and-file earned – and, preferably, lower than that.
To do otherwise would create corrosive levels of income inequality, he said, harming not only the companies but also all of society. (Disclosure: At The New York Times, the pay ratio is now 45, the company’s proxy statement says.)
In his great book, Other People’s Money, US Supreme Court Justice Louis Brandeis wrote, more than 100 years ago, “Sunlight is said to be the best of disinfectants.”
Let’s at least look closely at executive pay packages. Let the sunshine in. NYTIMES
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