Every proxy season tends to bring another round of hot debates over CEO pay rates and other executive compensation. The debates continue with the media and the investors watching. Companies want to reward top-performing CEOs for doing a stellar job and to attract top talent down the succession pipeline. But that’s only half the debate. The rest of the debate centers around what amount is reasonable even for a top performer of a leading company.
How much is too much for the highest CEO pay? What is the right mix of awards? Even once a board has come to some meaningful conclusions to those questions, they have to look at how the pay rate and the compensation plan that they’ve come up with compares with the average worker’s pay. After all, the workers are also contributing to the growth of the company, and the company couldn’t function without them.
The CEO pay ratio is calculated by dividing the CEO’s compensation by the median employee’s pay. This figure means that half the employees make less than the median and the other half make more than the median. In the vast majority of cases, CEOs make an extremely high percentage over their employees.
What the Statistics Tell Us About CEO Pay Rates
CGlytics researched the highest CEO pay rates and pay ratios of over 5,500 publicly listed companies to give us a basis for the top, bottom and average CEO pay rates. Here are some of the statistics they found:
- Total compensation granted for the top 50 CEOs was over $1.82 billion (this figure equates to more than the GDP of 21 national economies).
- Average total compensation granted for 2018 was $37,030,673.71 (up 62% from the prior year).
- Average total realized pay in 2018 was $37,909,498.50 (up 4.4% from 2017).
- The salaries for the top 5 CEOs represented over 27% of the total granted compensation for 2017.
- The total shareholder return decreased by 6%, on average, across the group.
- Stats indicate that pay for performance will continue to be a hot topic due to the extraordinary compensation packages being awarded.
Here are the top-10 highest-trending CEO pay rates as of May 3, 2019:
|Ranking||CEO||Company||Total Rank in Compensation||Total Realized Pay|
|1||Zaslav, David||Discovery Communications, Inc.||$129,499,005|| $33,498,259
|2||Hurd, Mark||Oracle Corporation||$108,295,023|| $26,690,273
|3||Catz, Safra||Oracle Corporation||$108,282,333|| $162,740,735
|4||Hodler, Bernhard||Julius Baer Group Ltd.||$78,813,367|| $2,979,804
|5||Levine, Jay||OneMain Holdings, Inc.||$71,532,583|| $71,532,583
|6||Schwarzman, Stephen||The Blackstone Group L.P.||$69,147,028|| $69,147,028
|7||Iger, Robert||The Walt Disney Co.||$65,645,214
|8||Charlès, Bernard||Dassault Systèmes SE|| $51,098,970
|9||Heppelmann, James||PTC Inc.||$49,969,163
|10||Freda, Fabrizio||The Estée Lauder Companies Inc.||$48,753,819
An Example From “The Most Magical Place on Earth”
One of the top-10 trending CEOs comes from the Walt Disney Company. CEO Bob Iger was offered $65.6 million in total compensation. The sum included special stock awards that the company gave him in connection with the acquisition of assets from 21st Century Fox. Iger will only receive all of that money if he meets his performance goals. Of course, if he exceeds the goals the board set for him, he could end up with far more.
Iger is just one man compared to the 200,000 employees and cast members that the Disney parks employ. Most of the employees are seasonal, part-time workers. To calculate the CEO pay ratio, we need to look at the annual pay of a median full-time employee, which is $46,127. Some simple math tells us that the CEO pay ratio is 1,424 to 1.
It’s no wonder that out-of-sync pay ratios such as Iger’s have drawn attention and criticism. In the Disney example, the exorbitant pay is even a topic of debate within the Disney family. Abigail Disney is the granddaughter of Roy Disney, who was the brother of founder Walt Disney. Abigail Disney isn’t an employee for the Walt Disney Company, but as a successful businesswoman and a member of the Disney family, she’s been plenty outspoken on pay ratios. Noting that she speaks only for herself, and not for her family, Abigail says that the pay ratio at the Disney Company is “completely out of whack.” In other discussions, Abigail stated that she liked Bog Iger, but she feels like the CEO pay ratios have gotten so far out of hand that they are having a corrosive effect on society.
In a response from the Walt Disney Company, they responded that they’d made historic investments to expand the earning potential and upward mobility of workers. They also noted that they pay a starting hourly wage of $15 per hour, which is twice that of the federal minimum wage. The company went on to say that Iger’s compensation plan is 90% performance-based and that they felt he offered the shareholders exceptional value for their investment.
Board Management Software Solutions for Addressing CEO Pay Ratios
CEO pay rates have been climbing — some say too high. As the Disney example shows, CEOs, boards, shareholders and the general public have their own perspectives on the issue.
When controversies over pay ratios emerge, boards have to act quickly. Board management software solutions such as those of Diligent Boards provide a secure platform for board and compensation committee collaboration on pay ratios. Board members can review competitors’ pay ratios and analyze the parameters with other companies’ compensation structures. The platform provides a way for board directors to vote online. Board administrators can set the program with granular permissions so that all members only have access to the information they need. Diligent Boards and Governance Cloud, which is a suite of digital board tools, provide a way for board directors to collaborate using any electronic device every day of the year to communicate their ideas for CEO pay ratios and all of the other board decisions they need to make on a regular basis.