For the past two years, the worker pay deficit in the US has been dangerously letting down employees with their failing executive compensation. Inflation has subjugated employees to lesser pay with increasing costs of living. In the face of a compensation crisis, top CEOs’ pay increased by 7.7 percent last year, and it is appalling.
Companies have been facing the daunting decisions of laying off employees and curtailing salaries. Amid the furloughs and the global economic downturn, some CEOs drew the contentious debate on the ethical implication of receiving salary hikes.
Ergonomically staying ahead of inflation of 6.4 percent in December, the average CEO pay ratio rose 7 percent, leaving top executive salaries in a high-yielding sheath while workers faced the perils of an economic slowdown.
The 100 best-paid CEOs of 2022’s public companies with more than $1 billion in revenue, pocketed a historic $22.3 million, including salaries, cash bonuses and stock awards.
“CEO compensation trends continue to rise at a higher rate than median employees., continuing to draw the ire of the average employee.”
The growing gap between the inflation-linked CEO pay raise and executive compensations, which is affected by the industry-wide layoffs, is dismaying workers.
According to the Bureau of Labor Statistics, a typical employee made about $56,000 in 2022, while top CEOs made 324x of it. The CEO pay raise is continuing its upward climb, and the pay ratio is likely to be highlighted under public scrutiny.
The CEO Pay Increase: CEO Compensation Is Not Just Salary
Amongst the 7.7 percent CEO pay raise, most of the C-suite leaders received 5 percent raises at best, but it is still a sharp decline from the pay swell of 2021 when top executive salaries bumped 31 percent due to post-pandemic bonuses and stock rewards.
Considering the poor performance of companies in the market in 2022, even the smallest pay disparity between CEOs and employees is overbearing. Real wages fell by 2.4 percent and the average S&P 500 Index lost 18 percent, earning $18.3 million.
But it is preemptive to know of the elements of the CEO compensation, which is not just made up of base salary, but a diversified structure.
“The valuation of the largest component of CEO pay increases – stock awards, increased by 19.7 percent to $13.8 million. Granted at the beginning of the year, they did not take the economic uncertainty into account, which occurred in the latter half of the year.”
Stock holdings and stock awards constitute a sizable portion of the average CEO pay, delineating a safe net for top-level executives to fall back on.
CEO Pay Ratio Dilemma: To Hike Or Not?
The debate of whether CEOs should take a pay increase or not has been subject to a dilemma amongst industry leaders. Many believe that C-suite leaders must remain empathetic to the losses of their employees – the greatest assets to their companies.
When confronted with an impeding economic slowdown, CEOs must strive to give back to their loyal employees, instead of riff-raffing with layoffs. Furthermore, great leaders also sacrifice their hikes to emotionally support the downtrodden lives of their employees.
“CEOs have the option of having a larger profit share at the year-end. The trend of CEO pay increases when employees are grappling with job security, is perverse.”
Conversely, some analysts believe that the responsibility of the CEO involves the function of people management and minimizing the risks of the company. But, companies have even been recorded to have boosted top executive salaries even when targets were missed.
“Hiring and layoffs are the two sides of the same cyclical coin. Being a part of a reorganization, layoffs should not impact the salary bonuses or pay raises of CEOs.”
Industry experts emphasize that running organizations with a lower headcount amounting to higher productivity, is a challenge for leaders and that they should be rewarded for the same.
CEO Compensation Trends: What Good Can A CEO Pay Raise Do?
The average CEO pay compensation has never fallen – even with inflation, there was a 1.8 percent miniscule CEO pay increase in 2019.
Inflation-linked CEO pay raises have alluded to aligning the corporate leader’s ostentatious financial incentives with the company’s – top executives are paid in stock so that targets are achieved, justifying why CEOs are rewarded. But what can the strategy of layoffs proportional to a CEO pay raise do?
Companies that have made the debilitating decisions of reducing worker pay and issuing furlough notices to lower labor costs have increased the operating margin between revenues and costs – the company’s share prices succor to rising.
“Google gained 15 percent after firing 12,000 employees, Meta experienced a 50 percent bounce back after Zuckerberg laid off employees, and Amazon’s stock skyrocketed by 19 percent after staff furloughs promised increased efficiencies.”
The highest-paid CEO of 2022 was Peloton’s Barry McCarthy, with total compensation of $168 million, mostly in stock options. Apple CEO Tim Cook took second place with $99.4 million, albeit Cook’s compensation in 2023 has been cut to $49 million. McCarthy and Cook were followed by AIG’s Peter Zaffino with $75.3 million.
