CEOs get big pay raises in 2023 as inflation weighs on US workers’ budgets

NEW YORK (AP) The typical compensation package for CEOs leading companies in the S&P 500 rose nearly 13 percent last year, handily outpacing earnings for workers at a time when inflation was putting significant pressure on Americans’ budgets.

The average pay package for CEOs rose to $16.3 million, up 12.6 percent, according to data analyzed for The Associated Press by Equilar. Meanwhile, wages and benefits collected by private sector workers rose 4.1 percent through 2023. At half of the companies in this year’s salary survey, a worker in the middle of the company’s pay scale would need nearly 200 years to do what their CEO did.

READ MORE: A closely watched inflation gauge rose at its slowest pace this year

CEOs were rewarded as the economy showed remarkable resilience, supporting strong earnings and boosting stock prices. After navigating the pandemic, companies faced challenges from persistent inflation and higher interest rates. About two dozen CEOs in AP’s annual survey received a pay increase of 50 percent or more.

In this post-pandemic market, the desire is for boards to reward and retain CEOs when they feel like they have a good leader in place, said Kelly Malafis, founding partner of Compensation Advisory Partners in New York. All of this combined kind of leads to increased compensation.

But Sarah Anderson, who directs the Global Economy Project at the progressive Institute for Policy Studies, believes the income gap between top executives and workers plays into overall dissatisfaction among Americans with the economy.

“Most of the focus here is on inflation, which people are really feeling, but they’re feeling the pain of inflation more because they’re not seeing their wages go up enough,” she said.

Many companies have heeded shareholder calls to tie CEO compensation more closely to performance. As a result, a large portion of pay packages are made up of stock awards, which the CEO often cannot cash in for years, if at all, unless the company meets certain targets, usually a higher stock price or market value or improved operating profits. The average share price rose almost 11 percent last year compared to a 2.7 percent increase in bonuses.

The PA CEO Compensation Study included pay data for 341 executives at S&P 500 companies who have served at least two full consecutive fiscal years at their companies, who filed proxy statements between Jan. April 1 and 30.

Top winners

Hock Tan, CEO of Broadcom Inc., topped the AP survey with a pay package worth about $162 million.

Broadcom awarded Tan stock worth $160.5 million in October. 31, 2022, for the Company’s 2023 fiscal year. Tan was given the option to earn up to 1 million shares starting in fiscal 2025, according to a securities filing, provided Broadcom’s stock meets certain targets and he remains CEO for five years.

At the time of the award, Broadcom shares were trading at $470. Tan would receive part of the stock price if the stock reached $825 and $950 and the full price 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 set, but the Shares have skyrocketed since then and hit an all-time closing high of $1,436.17 on May 28.

Like rival Nvidia Inc., Broadcom is riding the current artificial intelligence frenzy among tech companies. Its chips are used by businesses and public entities ranging from major banks, retailers, telecom operators and government bodies.

In giving the stock price, Broadcom noted that under Tan its market value has grown from $3.8 billion in 2009 to $645 billion (as of May 23) and that its total shareholder return during that time has exceeded easily that of the S&P 500. He also said Tan will not receive additional stock awards during the remainder of the five-year period.

Other CEOs at the top of the AP poll are William Lansing of Fair Isaac Corp, ($66.3 million); Tim Cook of Apple Inc. ($63.2 million); Hamid Moghadam of Prologis Inc. ($50.9 million); and Ted Sarandos, co-CEO of Netflix ($49.8 million).

At Apple, Cooks’ compensation represented a 36 percent drop from a year ago. Cook requested a pay cut for 2023 in response to a vote at Apple’s 2022 annual meeting, where only 64 percent of shareholders approved his pay package.

The survey’s methodology excluded CEOs such as Nikesh Arora at Palo Alto Networks ($151.4 million) and Christopher Winfrey at Charter Communications ($89 million).

Although securities filings show that Elon Musk has not received any compensation as CEO of Tesla Inc., his salary is currently at the center of the electric car company. Musk is asking shareholders to reinstate a pay package that was struck down 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 awarded in 2018, is now estimated to be about $45 billion.

CEO salary vs. worker

Workers across the country have earned higher wages since the pandemic, with wages and benefits for private sector workers rising 4.1 percent in 2023 after a 5.1 percent increase in 2022, according to the Labor Department.

Even with these gains, the gap between the person in the corner office and everyone else continues to widen. Half of the CEOs in this year’s salary study earned at least 196 times what their average employee earned. This is up from 185 times in last years survey.

The gap is particularly large at companies where employees typically earn lower wages, such as retailers. At Ross Stores, for example, the company says its employee in the middle of the pay scale was a part-time retail associate who earned $8,618. It would take 2,100 years to earn that much to equal CEO Barbara Rentlers compensation by 2023, worth $18.1 million. A year ago, it would take the average worker 1,137 years to match CEO pay.

Corporate boards often feel pressure to keep raising pay for top-performing CEOs for fear they’ll walk out the door and earn more at a rival. They focus on paying compensation that is competitive within their industry or market and not on the salary 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 earn wasn’t always so wide.

READ MORE: CEOs got smaller raises. The average worker would still need 2 lifetimes to make their annual salary

After World War II and into the 1980s, CEOs of large publicly traded companies earned about 40 to 50 times more than average wage workers, said Brandon Rees, the AFL’s deputy director of corporate and capital markets. -CIO, who runs an executive Paywatch website. which tracks CEO pay.

The (current) pay ratio signals a sort of one-winner culture, that companies are treating their CEOs as, you know, superstars as opposed to team players, Rees said.

Say paid

Despite the criticism, shareholders tend to give strong support to pay packages for company executives. From 2019 to 2023, companies typically received just under 90% of votes 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 in 13 companies in the S&P 500 gave executive pay packages less than 50 percent support.

After its investors gave another big hand over pay packages to top executives, Netflix met with many of its biggest shareholders last year to discuss their concerns. He also spoke to large advisory firms, which are influential because they recommend how investors should vote at companies’ annual meetings.

After the talks, Netflix announced some changes to redesign its pay policies. For one, it eliminated executives’ option to split their compensation between cash and options. It will no longer grant stock options, which can give executives a payday as long as the stock price stays above a certain level. Instead, the company will grant restricted stock that executives can only benefit from after a certain amount of time or after certain performance measures are met.

The changes will take effect in 2024. For the past 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 the Say on Pay votes are important because they shine a spotlight on some of the most egregious cases of executive access and can lead to negotiations over pay and other issues that shareholders can want to raise with corporate leadership.

But I think the impact, certainly on the overall size of CEO packages, hasn’t had much of an effect in some cases, she said.

Female CEO

More women took the AP survey than in previous years, but their numbers in the corner office are still small compared to their male counterparts. Of the 342 CEOs included in the Equilars 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, bringing home $30.3 million in compensation. of compensation in 2022. Its overall ranking rose to 21 out of 25.

Other top-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 company Northrop Grumman Corp. ($23.5 million); and Carol Tome of package deliverer UPS Inc. ($23.4 million).

The average pay package for female CEOs rose 21 percent to $17.6 million. That’s better than men: their average pay packet rose 12.2 percent to $16.3 million.

Ortutay reported from San Francisco. Reporters Stan Choe and Ken Sweet contributed.

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