The compensation of American CEOs has been escalating at the quickest pace recorded in over a decade, new data unveils. This surge in compensation, which includes unprecedented packages like Elon Musk’s, is posing concerns about the escalating gap between the haves and have nots.
Till now in 2024, there has been a notable 12% increment in the median remuneration for S&P 500 companies’ heads according to ISS Corporate, a division of Institutional Shareholder Services, while American wages saw a year-on-year rise of merely 4.1% as per the official records.
Elon Musk recently recorded a significant triumph in a shareholder vote, endorsing the largest package of stock options in US history, totalling $56 billion (approximately £42.1 billion).
William George, a former Exxon compensation committee head, believes this victory signals to executives that “financial prospects are boundless” and “there’s no limit on potential earnings”. George also voiced his concerns over the growing disparity, accusing executive pay of reaching an unmanageable point.
Excessive executive pay packages are often justified by companies wanting to deter top executives from entertaining offers from competitors, according to Robin Ferracone, the CEO of Farient advisers, a pay consultancy company.
Elon Musk’s compensation, largely composed of stock options linked to highly ambitious market capitalisation and revenue targets, is uncommon for a CEO. Ferracone suggests few executives are willing to stake their entire packages on such ambitious rewards.
That being said, companies like Peloton, Nikola, LendingTree, and Paycom Software that gave enormous stock grants to their CEOs have seen their own stock prices plummet.
George expressed his dissatisfaction towards major investors like BlackRock and Vanguard for not opposing excessive remuneration awarded to executives.
World’s largest asset managers, BlackRock and Vanguard, who are also the top institutional investors in Tesla, voted in favour of Musk’s remuneration package worth $56 billion last Thursday. Historically, both entities have predominantly endorsed executive bonuses. For instance, Vanguard backed 96 percent of all corporate remuneration payouts in 2023, as per Diligent’s data. Similarly, BlackRock also supported 91 percent of such pay votes.
Annually, both BlackRock and Vanguard usually endorse more than 90 percent of remuneration packages in American corporations, indicates data from Diligent. In this year, a mere 1 percent of S&P 500 remuneration votes have fallen through, reported Sullivan & Cromwell, a law firm.
When BlackRock and Vanguard were approached for comments, their representatives referred to their pay voting policies designed to link remuneration with performance. Jill Fisch, a law professor at the University of Pennsylvania, opined that executive pays indeed have a contagion effect, with one significant pay deal leading to another. However, she dismissed the presence of a strong contagion effect post the Musk vote.
Fisch suggested that the shareholder vote might deliver a convoluted message, primarily as it reflects the pay accorded in 2018 and the unique nature of Musk’s role as a CEO. Interpreting the outcome of such a vote as an indication of future remuneration for other executives would be challenging. Copyright The Financial Times Limited 2024.