New York, NY – Chief executives leading companies in the S&P 500 saw a significant increase in their compensation packages last year, outpacing the gains for workers amid rising inflationary pressures impacting American households. Analysis conducted for The Associated Press by Equilar revealed that the median pay package for CEOs rose by 12.6% to $16.3 million, while wages and benefits for private-sector workers only increased by 4.1% in 2023. A stark contrast was highlighted as it would take the typical worker in the middle of a company’s pay scale nearly 200 years to match the earnings of their CEO.
The surge in CEO compensation was attributed to the economy’s resilience, bolstered by robust profits and surging stock prices. Despite facing challenges from persistent inflation and higher interest rates post-pandemic, companies opted to reward their chief executives handsomely. Notably, about two dozen CEOs in the AP’s annual survey received pay hikes of 50% or more.
While the desire to retain and reward competent leaders post-pandemic was acknowledged, the widening gap between top executives and average workers has stirred discontent among Americans about the economic landscape. A focus on inflation and the inadequate rise in wages for workers has exacerbated this dissatisfaction, according to Sarah Anderson, the director of the Global Economy Project at the Institute for Policy Studies.
To address shareholder concerns, many companies are aligning CEO compensation more closely with performance. Stock awards make up a considerable portion of the pay packages, subject to meeting specific targets such as improved stock prices, market value, or operating profits. The shift towards performance-based pay was evident in the increase of almost 11% in median stock awards last year compared to a 2.7% rise in bonuses.
The AP’s CEO compensation study included data from 341 S&P 500 company executives who had served at least two consecutive fiscal years and filed proxy statements between January 1 and April 30. The top earner, Hock Tan of Broadcom Inc., garnered a pay package valued at approximately $162 million, largely driven by stock awards. Tan’s compensation was linked to the company’s stock performance, with the possibility of earning up to 1 million shares over time based on specific targets.
In a landscape dominated by tech companies riding the artificial intelligence boom, Broadcom and its peers like Nvidia Inc. have capitalized on the AI frenzy. The importance of performance metrics in determining executive compensation was underscored by Broadcom’s market value surge under Tan’s leadership. While the disparity between CEO pay and worker wages continues to grow, initiatives to tie executive compensation to performance signal a shift in corporate governance practices.