Fuente: CNN Business
Autor: Jeanne Sahadi
There is no shortage of headlines about CEOs getting paid seriously big money. Last week, for instance, it was revealed that Microsoft CEO Satya Nadella got a 66% raise, bringing his total compensation to nearly $43 million. And this summer Abigail Disney, an heir to the Disney fortune, publicly criticized CEO Bob Iger’s $66 million pay package, which is more than 1,000 times the median pay of Disney employees.
While many CEOs are not as generously compensated as Nadella and Iger, they do pretty well. In 2018, the median total compensation for S&P 500 CEOs rose 4% to $12.3 million, according to the latest figures from the Conference Board. CEOs at the high end of that group were paid more than $22 million, while those at the low end were paid roughly $6 million. But why do they make so much? And why might one CEO make millions more than another?
Tying pay to performance
If instead the CEO is awarded 1,000 performance shares, he will need to meet a given target over time — for instance, an average return on investment over the next three years — to get the full payout. If only part of the target is met, he may get a partial payout, Swinford said.
In either case, the $100,000 is what gets counted as part of the CEO’s compensation the year it’s awarded, even though he may end up getting much more or less depending on where the share price is when the award vests. So a CEO’s published compensation number for a given yearoften is not a true reflection of what he takes home that year or what he’lleventually be paid.
Are CEOs paid too much?
Most big public companies are now required to provide shareholders with a voteon CEO compensation under the SEC’s Say-on-Payrule. The vote results are not binding, so don’t require the board to take action. But they do let boards know how shareholders feel about the issue. The rule has only been in effect for 8 years. But so far this year,investors have rejected only 2.5% of pay package proposals, and the rate was similarly low last year, according to David Kokell, director of US compensation research for Institutional Shareholder Services.
Since the Say-on-Pay rule went into effect, CEO pay has actually risen. Still, Kokell said, “[the rule] has likely slowed the growth of pay. And it certainly has had a dramatic impact on the composition of top executive pay — resulting in widescale shifts to performance-conditioned pay opportunities.”
Even with that shift, though, it still can be hard to decipher just how well CEO pay is aligned with performance and shareholder value. CEO compensation packages have so many moving parts that pay out over time. And different corporate actions, such as stock buybacks, or the use of different accounting methods, can change the very targets that CEOs are supposed to hit under their pay incentive plans.
Ferracone notes that attractive CEO candidates will be doing pay comparisons of their own before accepting a position. “It’s a competitive market. CEOs will work for the company that pays them fairly for the job they’re doing. They’re no different than anyone else in that regard.”
And when boards increase CEO pay at some companies, that can drive other companies to pay more because their peer group norms go up.
Sky-high compensation packages often drive critics to ask: Are CEOs really worth all the money they’re paid?
“Don’t confuse pay with what people are worth.No human being is worth $20 million, but many executives cost $20 million,” said Swinford.
