Jeff Chiu/AP Photo
Apple CEO Tim Cook holds a new iPhone model at an event on the campus of Apple’s headquarters in Cupertino, California, September 7, 2022.
This article was produced by Capital & Main, an award-winning publication that reports from California on economic, political, and social issues. It is co-published here with permission.
Private sector workers gutted it out in 2023. Their overall compensation rose 4.1%, according to data reported last week by The Associated Press—just enough to keep pace with inflation after getting pounded by rising costs the year before.
Corporate executives, on the other hand, had a field day. The study, a collaboration between the AP and the research firm Equilar, found that median total compensation among S&P 500 CEOs in 2023 rose 12.6%, more than three times the rate of inflation and their workers’ increases.
Leading the way were Silicon Valley tech and entertainment giants. Broadcom Inc. CEO Hock E. Tan topped the list, with a pay package valued at about $162 million. William J. Lansing, CEO of Fair Isaac Corp. (better known as FICO), took in $66.3 million, while Netflix co-CEO Ted Sarandos’ pay package was $49.8 million.
Apple CEO Tim Cook’s total compensation was $63.2 million—yet it represented a 36% decline from 2022, in part because Cook’s deal that year was loudly criticized by some Apple shareholders.
The median pay package for the CEOs last year was $16.3 million, according to the study assembled by Equilar. At half of the companies surveyed, a worker at the mid-level pay scale would need almost 200 years to earn what the CEO made in a year.
JARRING AS THAT IS, this dynamic is not new. The pay gap between corporate top executives and the workforces that design, create, produce and deliver their products has been diverging wildly for decades, economists said.
Top executives have always made multiples of what the average private sector worker received, but recent years have kicked that into hyperdrive. Research by the Washington, D.C.-based Economic Policy Institute showed that between 1978 and 2021, CEOs at the top 350 public firms in the U.S. saw their average compensation package grow by 1,460%, adjusted for inflation. For comparison, the S&P stock market grew by 1,063% in that time; the top 0.1% of U.S. earners’ growth was a healthy 385%, and a typical U.S. worker’s wages rose 18.1%.
Study after study has shown that large companies’ performance, including stock price, bore almost no relation to how much the companies paid their CEOs, said Josh Bivens, the EPI’s chief economist.
“The research on that just gets stronger and stronger,” Bivens told Capital & Main. “You look at the highest-paid CEOs versus the lower-paid ones, then look at returns to shareholders 10 years later. You just get no relationship at all between more pay and higher return to shareholders—and that is assuming that all anyone cares about with CEO pay is the return to shareholders.”
The wild payouts have corrosive effects. Among other things, the vast majority of CEO megadeals consisted largely of stock awards, either current or future. It is increasingly common for companies to goose their stock prices by using profits to buy back their own shares, leaving fewer publicly available shares and artificially increasing their value—a CEO-led decision that, while legal, directly benefits the CEO.
The extra tens of millions of dollars spent on executives also represented money that could have been distributed elsewhere, including to workers themselves, but wasn’t. The huge money paid to CEOs also influenced pay to the next few highest-paid executives in any given company, driving their compensation upward, Bivens said. In 2021, for example, Pacific Gas & Electric paid its CEO $51.2 million, while three other executives also took home nearly $16 million combined.
Top executive pay continues to skyrocket, but companies generally don’t perform any better, not even for their shareholders. That is one slick deal for the people at the top. But is there a way to curb such pay?
THOSE OPPOSED TO MASSIVE CEO AWARDS have worked on remedies for years. The most effective would likely involve reinstating higher top marginal tax rates on the country’s biggest earners—what they pay on the highest amounts they make. That rate, which was 72% in 1970, has since lowered to the current 37%.
“If you’re a CEO, and you’re deciding how hard to push it in terms of inflating your pay package, the benefit is how much you get to take home, and the cost is a certain amount of public outrage over it,” Bivens said. “If the top marginal tax rate is high, then the benefit is not that big, so you maybe don’t want to tolerate that outrage.”
Many economists have also argued that when the U.S. had higher rates of unionization, such public ire was more frequent and more focused because unions were good at raising the issue during labor negotiations. The decline of unions has meant less attention paid to CEO deals.
Recently, shareholders have become more vocal about their opposition to galactic CEO payouts, though their effect is muted because they don’t have the final say. Boards of directors, not shareholders, set CEO pay—and, as Bivens pointed out, CEOs largely handpick board members.
But the tide may be turning. Cook’s lower pay package at Apple for 2023, while still staggering, came about in part because 36% of the company’s shareholders voted against his nearly $100 million deal the year before. The shareholders’ votes didn’t count when the board finally met and approved Cook’s payout because they are considered advisory only—but it’s clear they were heard. Cook himself asked for a reduction in compensation for ’23.
Others, including Live Nation shareholders last year, are following suit, even in nonbinding votes. Perhaps they are becoming aware of the truth. “Speaking generally, you just do not buy higher returns by paying your CEO more money,” Bivens said.
