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Google parent company Alphabet reported this week that the median compensation for its employees was $246,804 last year, while its CEO Larry Page made just $1 in salary, the same he’s made for many years.
Jack Dorsey made a combined $4.15 last year for being the CEO of both Twitter and Square, while the median wages at those companies were $172,703 and $155,200, respectively.
That makes the ratio of CEO pay to median employee pay at these companies a teensy fraction of a percent.
Instances like these, however, are rare and function as public relations ploys to deflect from the fact that these CEOs are among the richest people in the world, no matter what nominal salary they’re paid. As founders, these CEOs own huge portions of their company’s stock, so they’re making plenty of money. The tiny salary is more of a statement of their wealth than a declaration of austerity.
Overall, tech CEO salary rose 15 percent last year on average to $6.6 million, according to preliminary proxy statement data from executive compensation company Equilar, which looks at the 3,000 largest companies in the US by market cap. The average median pay for all their workers actually declined 2 percent to $82,500, for a CEO to employee pay ratio of 129 to 1.
In general, CEOs in America enjoyed pay increases last year that far outpaced workers’ gains. Average CEO pay across all industries rose 8 percent on average in 2018 to $7.4 million, according to Equilar. Meanwhile, average median wages for employees at those companies stayed about the same at $77,000, on average. CEOs at those companies made about 150 times what a typical worker did last year.
Companies were required to report median employee compensation for the first time last year, thanks to newly enacted Dodd-Frank rules, which were implemented as part of an overhaul of the consumer finance system following Wall Street’s financial crisis (the rule was adopted in 2015 and went into effect in 2017). So authoritative pay-ratio data, over time, is limited. However, the nonprofit think tank Economic Policy Institute (EPI), in a smaller analysis of the top 350 US companies, estimates that the ratio of CEO pay to that of a typical employee was more like 15 to 1 in 1965. The ratio among that grouping rose to 221 to 1 in 2017. (The disparity between this and the Equilar data has to do with sample size as well as methodology.)
CEO pay in the EPI analysis rose about 1,000 percent between 1978 and 2017 — faster than stock prices, corporate profits, and worker pay. In other words, rising C-suite salaries are not translating into either a company or its workers doing better.
This is part of a long-running trend that has increased wealth inequality in America, as the people who already make the most see their wages rise faster than people who make less. That trajectory hasn’t changed this year, according to the report’s author Lawrence Mishel, an EPI distinguished fellow, and is expected to continue.
Why is CEO pay rising so swiftly?
“[I]t’s a combination of a few factors, namely increased responsibilities over growing companies and higher than median pay to attract higher-level talent,” according to Equilar’s director of Research, Courtney Yu.
CEOs also benefit from their own rarity, if not necessarily skillset or brilliance.
“Companies need CEO compensation to be competitive in order to retain their own executives,” Yu said. “Having experience as a CEO is rare, so if there’s an open CEO position elsewhere, a company that doesn’t pay competitively might find themselves in a situation where their own CEO leaves for better pay.”
Mishel sees it differently.
“Every compensation committee thinks its CEO is above average and pays their CEO above comparable companies,” he said. “We have a flawed system that ratchets up executive pay.”
Also, since CEO pay increasingly includes stock-based compensation rather than just salary raises, their pay is directionally tied to the stock market. That means the 10-year bull market we’ve enjoyed has helped propel CEO salaries upward. It’s also why the low-paid CEOs mentioned earlier can afford to live — and live well — off the company stock they already own.
“If the stock rises, everybody is rewarded as if they performed as well as everyone else,” Mishel said. “If you’re a tech CEO, you get rewarded if the stock goes up, whether or not it goes up faster than the competition.”
It was a good year
2018 was a good year for the stock market — and for CEOs. The nominal no-salary gestures aside, tech is no exception.
Tesla’s Elon Musk’s equity option awards last year amounted to an enormous $2.3 billion — though that sum is tied to hitting 16 operational metrics in the next 10 years, including ambitious revenue and market cap goals. His salary was just $56,000.
Apple CEO Tim Cook’s compensation rose 22 percent to $15.7 billion, thanks to cash incentives tied to Apple’s sales and operating income goals.
Facebook CEO Mark Zuckerberg saw a 155 percent increase in compensation last year, from $8.9 million to $22.6 million, despite a series of major privacy blunders that have led to a decline in stock price. However, most of that rise had to do with the company approving a $10 million increase for Zuckerberg’s personal security. Zuckerberg’s official salary is just $1.
Here’s what the CEO and employee compensation levels have looked like for these and other major companies in the two years they’ve been required to report pay ratio.
What’s the result of ballooning CEO packages?
“It means that other people earn less,” Mishel said. “The redistribution upwards to the top 1 percent has been a major factor in slowing wage growth to the vast majority.
“In my view, what these executives are getting is income that other people would have gotten, including bottom 90 percent of workers.”
Growing CEO pay is an important topic given the current state of American politics and society, as everyone from the Democratic Socialists to billionaires themselves are discussing wealth inequality, corporate responsibility, and the ills of capitalism. Extravagant CEO pay packages, especially amid stagnating wages for the majority of Americans, is rife for blowback.
While there’s no legislation that would block the rise in CEO pay, a number of politicians, including Sen. Elizabeth Warren (D-MA), have been vocal about breaking up big tech companies. “I’m sick of freeloading billionaires,” Warren said at a rally in Long Island City, which was supposed to be the home of Amazon’s second headquarters.
Indeed, lowering CEO pay wouldn’t affect the companies or the wider economy, Mishel said. “We could cut their pay in half and the economy would be just as big next year,” he said.
For now, CEO pay is the only thing certain to be big.
Update: This post has been updated to clarify that the data we’re using is an average of median worker pay at each company. Median pay is what’s reported to the Securities and Exchange Commission.
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