Written by Stan Shaw, Business Writer at AP
NEW YORK (Associated Press) – Even when average workers earn their biggest increases in decades, they look small compared to what CEOs are getting.
The typical bonus package for CEOs who run S&P 500 companies rose 17.1% last year, to an average of $14.5 million, according to data analyzed for The Associated Press by Equilar.
It towers over gains that outpaced the 4.4% increase in wages and benefits for private sector workers through 2021, which was the fastest on record since 2001. Increases for many ordinary workers also failed to keep pace with inflation, which reached 7% at the end of last year.
CEO pay took off as stock prices and earnings rebounded sharply as the economy emerged from its short recession in 2020. With so much of a CEO’s pay tied to such performance, their paychecks have ballooned after years of mostly moderate growth.
In several of the more eye-catching packages, such as Expedia Group, valued at $296.2 million and JPMorgan Chase, at $84.4 million, boards of directors have made particularly large grants of stock or stock options to newly appointed CEOs who navigate their companies during the pandemic or for well-known leaders. He wanted to persuade to hang out.
CEOs often cannot take advantage of such stock or options for years, or perhaps at all, unless the company achieves performance goals. But companies still have to disclose estimates of how much they are worth. Only about a quarter of the typical pay package for all S&P 500 CEOs last year was actual cash they could get.
Regardless of its composition, the pay gap between CEOs and the workers they oversee continues to widen. At half the companies in this year’s wage survey, it would take the worker in the middle of the company’s payroll at least 186 years to make what their CEO did last year. That’s up from 166 the year before.
At Walmart, for example, the company said its broker partner earned $25,335 in compensation last year. This means that half of its workers earn more, and the other half earn less.
That’s a 21% increase from $20,942 a year earlier and came as the company’s average hourly wage for American employees has risen from $14.50 in January 2021 to more than $17 currently. That increase was larger than the increase received by CEO Doug McMillon, on a percentage basis. But his 13.7% increase netted him a total package worth $25.7 million.
Anger is growing because of this imbalance. Surveys show that Americans across political parties see CEO pay as too high, and some investors are fighting back.
Workers are trying to organize unions across the country, and the “Great Resignation” has encouraged millions to quit to find better jobs elsewhere. The US government counted more than 4 million withdrawals during April 2021 alone, the first time this has happened. Since then, the monthly number has exceeded 4.5 million times.
“It’s going to add a huge cost to corporate profits, to have that kind of turnover,” said Sarah Anderson, director of the Global Economy Project at the Progressive Institute for Policy Studies.
“They should think about what kind of message they’re sending to these people, about whether they are really appreciated in their jobs,” Anderson said. “When the guy in the corner office does several hundred if not thousands of times more, that sends a really frustrating message.”
CEO salary gains have slowed in recent years, with the average rise slipping from 8.5% in 2017 to 4.1% in 2019. It returned to 5% in 2020, which was a complicated year as the pandemic shut down the economy and many companies’ profits plummeted.
For 2020, many companies have reorganized the complex formulas they created to determine the salaries of their CEOs. The adjustments offset losses from the pandemic, something many boards said was an unusual occurrence outside the CEO’s control.
Then came 2021. Thanks to the reopening of the economy, ultra-low interest rates from the Federal Reserve and other factors, stock prices soared and the S&P 500 jumped about 27%, setting records for the year. Earnings per share are up nearly 50%.
Over the course of the year, CEOs have had to navigate faltering supply chains and shortages of chips and other key materials that affected businesses across industries, said Dan Laden, partner at Compensation Advisory Partners, a consulting firm that works with boards.
“This all led to the desire to really reward the CEOs, because the financial performance was there, and the view was that the management teams were exceptional in handling the situation and delivering results,” said Kelly Malavis, also a partner at Compensation Advisory Partners.
Last year’s 17.1% jump for average S&P 500 CEO salaries was the biggest since a 23.9% increase in bonus packages for 2010, according to data analyzed by Equilar.
Consider Mary Barra, CEO of General Motors. Its industry has been particularly hard hit by a shortage of computer chips, which has disrupted automobile production.
However, GM’s board of directors highlighted how the company continues to deliver record earnings before interest, taxes, and a few other items. The automaker has also accelerated the development of its electric vehicles. These are two of the factors affecting Barra’s pay, and her compensation increased 25.4% to $29.1 million.
“I hope the company that is making record profits realizes that the workers who do the work are the ones generating the revenue,” said Dave Green, a hot metal driver at the General Motors facility in Bedford, Indiana. “We’re just trying to get what you want.”
He cited in particular temporary workers who earn nearly $16 an hour, who have to work years before coming in as full-time employees and don’t get many opportunities to take days off in the meantime.
“The new people coming in, their kids won’t be able to get the opportunities that my kids have,” said Green, who has two daughters and started at General Motors as a summer assistant in 1989.
Closest to the top of the CEO salary rankings last year was JPMorgan Chase’s Jamie Dimon, whose $84.4 million salary is the fifth highest in an AP survey. That was 166.7% higher than the year before, and most of it came from $52.6 million in stock options grants.
The board said it made the options because it wanted Damon, 66, to continue to lead the company for significantly more years and a “unique inflection point in Mr. Dimon’s era”. She also said that the options were not part of his regular annual wage and that he must wait at least five years to start exercising them.
However, only 31% of investors at JPMorgan Chase’s recent annual shareholder meeting said they liked Dimon’s salary package. The vote is advisory only, though, and doesn’t force the company to make changes.
Last year, 92.6% of shareholders approved of their so-called “Say On Pay” vote in an AP poll. This was just down from 93.4% a year earlier.
The AP and Equilar Pay Study included wage data for 340 CEOs at S&P 500 companies who had served at least two fiscal years at their companies, which provided proxy data between January 1 and April 30. Some high-profile CEOs were not included because they did not fit the criteria, such as Andy Jassy of Amazon and Parag Agrawal on Twitter. The survey does not account for changes in the value of CEO pensions and some other items in compensation totals.
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