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The 100 Most Overpaid CEOs 2023 — As You Sow [1]

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Date: 2023-09

CEO COMPENSATION

Every S&P 500 company files a proxy statement with the SEC describing in detail its CEO’s pay package. The compensation report in the proxy statement often claims the pay package is based on the pay of similar, or peer, companies and the pay is tied to the performance of the company and its CEO. These explanations can run to 30 pages or more, detailing numerous metrics for both short term and long term bonuses which are all supposedly related to performance. Many academics have studied how the annual ratcheting up of the pay of all CEOs is not linked to performance. See in particular Pay without Performance by Harvard's Lucian Bebchuk and Jesse Fried or The CEO Pay Machine by Steven Clifford². As shown in Appendix F, there is almost no positive link between the pay of the CEO and the company's financial performance.

There are two main ways to measure CEO pay: grant date pay or realized pay. Grant date pay is reported in the proxy statement in its Summary Compensation Table (SCT). As You Sow uses grant date pay in this report. This method values stock granted to a CEO as part of pay at its market price at the time the grant is awarded or announced.

However, generally the stock vests either over time or after meeting performance metrics or both. Typically, several years pass before the CEO can sell the stock and turn this part of pay into cash. At that time its cash value may be more or less than it was when it was awarded or announced. Thus, the CEO will likely realize an amount that is different from that reported in the proxy statement. Similarly, the value of any stock options granted to the CEO will differ from the value placed on them when initially granted.

The realized pay method values stock and options given to the CEO at the cash value when they are sold or vested (when the CEO has the right to sell them). The realized pay method has historically been less visible and more difficult to calculate, but inclusion will be required in future proxy statements. Because of the extended bull market most CEO pay stock awards have come to be worth much more than they were originally estimated to be.

Recently the Economic Policy Institute (EPI) conducted a study of CEO pay at the top 350 firms in the United States using both the grant date and realized pay method. EPI found the average CEO in the 350 firms was paid $15.6 million per year when measured using the grant date method and $27.8 million per year when using the realized date method. Realized CEO pay in the 350 companies they analyzed rose by an average of $2.8 million or 11.1 percent while grant date pay increased 9.6 percent from from 2020 to 2021.³ In other words, the grant date method of valuing CEO pay greatly understates the amount of money that the CEO actually collects for work as a CEO.⁴

Insightia, a data analysis firm, using a different set of companies and a different time frame, found that realized pay for the CEOs of S&P 500 companies averaged an incredible $65 million per year in 2021.⁵

The AFL-CIO's Paywatch website uses grant date to measure pay and has a slightly different time frame than we do, but reports that CEO pay increased in 2021 by an average of 18.2 percent. They note that this is greater than the inflation rate of 7.1 percent during that time frame, and much greater than the 4.7 percent increase in worker wages during that same time frame.⁶

A WTW (rebranded name from Willis Towers Watson) analysis – that reported only on companies that had filed proxies by the end of April 2022 - found that the pay increase in 2021 was the highest since 2014. According to the analysis, “total pay for CEOs at large publicly traded companies jumped 15.7 percent in 2021, sharply higher than the 3.2 percent median increase in 2020.” ⁷ Higher annual bonuses were a major component of high annual pay with annual bonuses ballooning by 39.3 percent, compared to a decline of 6.1 percent in 2020. A very high proportion of CEOs were paid above target bonus with 82 percent of the CEOs in this analysis receiving bonuses of more than 100 percent of target.⁸ This suggests a systemic easing of target criteria.

On May 15, 2022, The Wall Street Journal published figures on CEO pay showing an increase for all S&P 500 companies. Using that data, As You Sow found there were 137 companies (27 percent of the S&P 500 companies) where CEO pay increased by more than 30 percent over the prior year and 28 companies (five percent of S&P 500 companies) where CEO pay increased by more than 100 percent.⁹

There are many ways to measure CEO pay, but looking at pay data from 2021, there was a consistent conclusion: CEO pay was up, often sharply. The rate of increase was among the highest in recent years.

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[1] Url: https://www.asyousow.org/report-page/the-100-most-overpaid-ceos-2023

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