The Sky’s the Limit for CEO Pay

Companies now must disclose how much CEO stock holdings increase when the market rises.

By Jeff Sommer

The annual tallies of CEO pay for 2023 have arrived, and they are fascinating and irritating, in equal measure.

There is already so much evidence that CEOs are earning a ton of money — while most employees are not — that these annual revelations can’t be called shocking news.

But this year, there’s a new wrinkle: Companies must disclose how much CEO stock holdings increase when the market rises. By that measure, too, CEOs are amassing extraordinary wealth.

From any angle, the specifics are eye-popping.

In 2023, using traditional measures of executive pay, four CEOs of publicly traded companies were each rewarded with more than $150 million:

  • Jon Winkelried of TPG, a private equity company.
  •  Harvey Schwartz of the Carlyle Group, also a private equity firm.
  • Hock Tan of Broadcom, a semiconductor and data-center giant.
  • Nikesh Arora of Palo Alto Networks, a global cybersecurity company.

Plus, new rules stemming from the Dodd-Frank law of 2010 have gone into effect. They focus on how the market changes executive pay each year, yielding a second highest-paid CEO list.

These new numbers — called compensation actually paid (CAP) — are often even bigger than the traditional CEO payday bonanzas. That’s the case for a man whose outsize pay is already a major issue for his company: Elon Musk of Tesla, who gained $1.4 billion in 2023 — more than any other CEO.

But that stunning figure is only theoretical and based largely on stock to which Musk no longer has a legal claim.

The holdings reflect an earlier $46.5 billion pay package that a judge in Delaware has voided, and that Musk is fighting to reclaim. Tesla shareholders are set to vote on Musk’s pay on Thursday, May 12, and court battles are likely to continue for a long while.

So now we have two complete data sets using distinct and complementary analytical methods, both demonstrating what we’ve always known: It’s good to be the boss.

But how good, exactly? CEO pay data, gleaned from the filings of all publicly traded companies and assembled at my request by the executive compensation research firm Equilar, provided fresh answers.

Traditional Pay

First, consider the long-standing methods for assessing executive compensation required by Dodd-Frank. Publicly traded U.S. companies must disclose top executives’ salaries, the value of newly granted stock and options and an assortment of miscellaneous perks such as personal security guards and corporate jets.

I’ll call this entire approach Traditional Pay, although there’s nothing traditional about it for those of us who take the train or subway to work and will never receive pay packages with nine figures.

Using Traditional Pay, Equilar identified the 100 highest-paid CEOs at public companies in 2023. The median pay for these executives — the midpoint, where half of the compensation packages are lower and half are higher — was more than $29 million.

And thanks to Dodd-Frank, we also know that the median pay of employees at these companies was around $100,000, and the median CEO-to-worker pay ratio was about 300-to-1.

Let’s translate that.

It means that for an average employee at one of these companies to earn as much as the CEO, she would have to transcend the human life span and toil for 300 years. And consider this: The American worker’s average annual wage in 2023 was only $65,470, according to the Bureau of Labor Statistics. At that wage, it would take 445 years to earn as much as the middle-of-the-road CEO on this list.

Top of the Heap

What about the CEO at the very top? For 2023, that would be Winkelried, whose compensation was $198,685,926. The median pay of TPG employees was high, too: $290,997. Even so, it would take them 683 years to earn what Winkelried made in one year. And for people with average American paychecks? More than 3,000 years.

Pay ratios on this scale reflect levels of income inequality that were widely viewed as abhorrent 50 years ago. Last year, I pointed out that the American social structure was flatter and CEO-worker pay ratios were lower in the 1970s and 1980s. I noted recently that income inequality was an important cause of Social Security’s financial problems because high earners were increasingly protected from taxation by the income cap for the Social Security payroll tax.

Through the 1970s, one study found, the CEO-to-worker pay ratio for big companies was less than 20-to-1. In the 1980s, Peter F. Drucker, an economist and Wall Street Journal columnist, cited research showing it felt “about right” when CEOs received 10 to 12 times what workers earned. He said pay ratios as high as 20-to-1 pay might be all right for workplace morale and social cohesion, although that was stretching it.

But paying the CEO hundreds of times more than workers earned? That was out of the question then, although it is now standard practice for many big publicly traded companies. (Disclosure: Here at The New York Times, the pay ratio is 54-to-1, the company says.)

Using Traditional Pay metrics, the second-most highly paid CEO in 2023 was Schwartz. He earned $186,994,098 — 813 times what the median Carlyle employee received. Right below him on the list was Tan, who got $161,826,161. The pay ratio at Broadcom was 510-to-1.

The highest-ranked woman on the list was Sue Nabi of Coty, a beauty products company. She was in fifth place, with a total compensation of $149,429,486. The median worker at Coty earned $39,643. That combination produced the highest pay ratio in the Traditional Pay list: 3,769-to-1, meaning that Coty employees would need to work for more than 3,769 years to earn what she received in just one year.

A New Approach

Twelve years after the enactment of Dodd-Frank, the Securities and Exchange Commission approved additional rules for assessing CEO pay. Virtually all publicly traded companies have been subject to these “compensation actually paid” rules this year.

The new approach is supposed to help shareholders determine whether an executive’s compensation is aligned with their company’s stock market return. It emphasizes the annual changes in value of an executive’s current and potential stock holdings, in contrast with the traditional approach, which provides a snapshot of the estimated value of a pay package when it is granted.

It’s too early to judge the new calculation. Although it provides new tidbits, it has drawbacks. For one thing, the way it’s computed is complex. In their disclosure statements, companies have quietly complained about it.

After Musk, the next CEO on what I’ll call the New Accounting list is Alexander Karp, CEO of Palantir Technologies, with nearly $1.1 billion. But take that gaudy number with many grains of salt.

A footnote in the Palantir compensation disclosure made me laugh, which was noteworthy because these compensation disclosures usually make me frown.

Referring to Karp’s apparently gargantuan payday, it said: “The term ‘compensation actually paid’ or ‘CAP’ does not reflect the amount of compensation actually paid, earned or received by him during the applicable year.”

In reality, Palantir said, the numbers reported for Karp and a handful of other Palantir executives “are driven primarily by changes in our stock price,” which rose more than 100% in 2023, producing big gains for shareholders and so, “following SEC disclosure rules, the fiscal year 2023 CAP disclosed below has increased.” But 2022 was a miserable one for the whole stock market. Palantir shares fell sharply, as did the value of Karp’s compensation, using the New Accounting approach. For 2022, the company said, he lost more than $1.7 billion.

These staggering, fluctuating sums would be perplexing in isolation. Still, they serve a purpose, I think. Big changes in this measure are a sign that a CEO received enormous compensation packages involving company stock in the past. For example, the Times reported that for 2020, Karp received $1.1 billion in Traditional Pay, the most for any CEO that year.

Similarly, Broadcom reported that in 2023, Tan’s compensation with the New Accounting was $767,654,487, almost five times his already rich compensation on the Traditional Pay list. That happened because the share price rose and Tan, CEO of his company since 2006, had amassed a great deal of stock, options and the like.

In an interview, Roy Saliba, managing director at ISS-Corporate, a provider of data and analytics to corporations, said, “The compensation actually paid numbers really get amplified for executives who have been at a firm for a long time and have accumulated holdings for a number of years.”

For investors untroubled by income inequality and its social consequences, it might be fine for CEOs to make expanding fortunes as long as stock prices rise. And prices have risen for the overall market since 2010.

The median pay for CEOs of S&P 500 companies rose 63% from 2010 through 2023, based on data provided by ISS-Corporate. At the same time, S&P 500 returned 462%, including dividends, according to FactSet.

If you focus entirely on stock performances like that, the level of CEO pay may seem inconsequential. Say-on-pay votes give shareholders a chance to signal disapproval of pay packages, but 92% of the time this year, investors at S&P 500 companies have said “yes” on CEO pay, according to ISS-Corporate data.

Yet, I suspect that the stock market would perform well even if CEOs merely earned millions, instead of hundreds of millions, and rank-and-file workers got a bigger slice of the pie. That’s not the way the world has been going, not for many years. But it doesn’t have to be that way.

c.2024 The New York Times Company. This article originally appeared in The New York Times.

Latest news

Industry Snapshot Reveals Record Number of SEC-registered Investment Advisers

There were 15,396 SEC-registered advisers and 56.7 million asset management clients, according to the Investment Adviser Industry Snapshot

California Bans ‘Resort Fee’ and Other Hidden Charges

But other legislation would let restaurants charge a mandatory gratuity or other surcharge as long as it is displayed clearly on the menu.

Losing a Spouse Hits Most Women Hard Financially: Thrivent

Many widowed women had no financial conversations or plans in place before their spouse died, Thrivent's new survey finds.

Schwab Survey Finds Increased Opportunities for Advisors

Americans are most likely to seek financial guidance from an advisor, and three-quarters avoid social media influencers, the survey reveals.

Advisors Boost Allocation to Private Markets as Client Interest Grows

Over half the investment advisors surveyed by Hamilton Lane plan to allocate 10%+ of clients’ portfolios to private markets this year.

Virginia Leads in Personal income, West Virginia is Last: WalletHub

A new WalletHub report lets you see how your state ranks in personal income for the top 5%, bottom 20%, and total population.