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Even as inflation gradually cools off, there is one price rise affecting corporate America that knows no end in sight\u2014the ever-rising cost of paying top executives.<\/p>\n
Despite more than a decade of controversy, median CEO compensation at the 500 largest S&P companies increased at its highest pace in at least 14 years in 2023 according to figures from Institutional Shareholder Services\u00a0cited<\/a>\u00a0by the\u00a0Financial Times<\/em>\u00a0on Sunday.\u00a0\u00a0<\/p>\n The debate over high CEO pay in America has raged for years, as proponents argue the free market sets the level while critics claim it is untethered from reality given that U.S. executives\u2019 peers in fellow industrialized nations earn a fraction of what they take home.\u00a0<\/p>\n Data from Equilar published\u00a0earlier this month<\/a>\u00a0declared Jon Winkelreid from private equity firm TPG<\/a> the best-paid executive in America, taking in nearly $200 million in total compensation, while the top five in its ranking all earned a minimum of $150 million each. Many Americans are no longer willing to countenance these kind of rewards, as wages adjusted for inflation\u00a0stagnated for decades<\/a> before the recent bout<\/a> of high inflation<\/a> both pushed up wages and strained their finances.\u00a0<\/p>\n This controversy has taken on new dimensions amid Elon Musk\u2019s campaign to \u201crestore Tesla\u2019s stockholder democracy<\/a>\u201d by ratifying his 2018 pay package. Comprised of stock options with deeply discounted strike price, it\u2019s worth on balance nearly $8 billion per year.\u00a0<\/p>\n A decade ago the late vice chairman of Berkshire Hathaway<\/a>, Charlie Munger, pushed back against the idea that massive pay was sometimes justified in order to sufficiently incentivize executives.<\/p>\n \u201cDo you really think that a man who craves power and significance, likes decision-making and running a big company, has one of the important public ranks in America and makes $5 million a year\u2014do you really think he would work a lot more effectively if you raise him to seven?\u201d Munger told CNN\u00a0in 2014<\/a>. \u201cI think the whole thing is insane.\u201d<\/p>\n By comparison, Berkshire\u2019s CEO, Warren Buffett, earned only $100,000 in annual salary over the past 40 years with total compensation barely reaching the half-million mark, SEC filings\u00a0analyzed<\/a>\u00a0by\u00a0Business Insider<\/em>\u00a0showed in December.<\/p>\n Munger argued the system had an inherent flaw: With high compensation for non-executive directors in exchange for their cushy and lucrative seats on corporate boards, these individuals were often happy to grant ever larger CEO compensation deals\u2014\u201ca daisy chain of reciprocity,\u201d as he saw it.<\/p>\n One such person who could fit Munger\u2019s characterization is Robyn Denholm, who attested in court to the \u201clife-changing\u201d wealth she accumulated as the chair of Tesla\u2019s\u00a0oft-maligned board<\/a> full of Musk\u2019s friends and family.\u00a0<\/p>\n Over the past month, the Australian emerged from her role in the background to mount a veritable media blitz lobbying for CEO Elon Musk\u2019s pay deal\u2014dubbed the\u00a0largest in human history<\/a>.\u00a0<\/p>\n In 2018, shareholders granted the board\u2019s request to give Musk the right to purchase up to 304 million shares for a price of $23.34 each\u2014which in theory would net him $47 billion were he to exercise the options and subsequently sell the stock at its current $178 price\u2014if the company hit certain market capitalization, revenue and earnings goals. The company hit all the market capitalization goals by late 2020<\/a>, amply rewarding Tesla\u2019s shareholders\u2014of which Musk is the biggest.<\/p>\n This package was declared null and void in January by a\u00a0Delaware court<\/a>\u00a0due to the fact that Denholm and her fellow directors allowed Musk to set the terms himself. This lenient board governance, however, left the very real possibility that he effectively would not be rewarded at all for his past six years of labor.\u00a0<\/p>\n As chair responsible for the situation, Denholm argued it was only fair shareholders re-approve Musk\u2019s pay in\u00a0last week\u2019s crunch vote<\/a>. \u201cPut yourself in his shoes,\u201d she\u00a0urged<\/a>\u00a0earlier this month. \u201c[It\u2019s] really about fairness\u2014fairness to our CEO.\u201d <\/p>\n The asset management company T. Rowe Price\u2014one of Tesla\u2019s top 10 investors\u2014followed a similar line in a statement before the vote: \u201cIt is not reasonable for investors to\u2026consider all that value creation to have been delivered to us for no consideration.\u201d<\/p>\n Whether it was their arguments or fear that Musk might resign without a clear succession plan, nearly three in four votes cast by\u00a0disinterested shareholders<\/a> followed Denholm\u2019s wishes and\u00a0approved<\/a>\u00a0the plan again.\u00a0<\/p>\n Musk\u2019s pay may be an outlier, but the trend towards massive CEO pay in the U.S. has been clear for years. The\u00a0latest annual figures<\/a>\u00a0from trade union AFL-CIO revealed the average CEO at the 500 largest S&P companies hauled in $16.7 million in 2022. That means it would take workers 272 years to make what their chief executives earn annually.\u00a0<\/p>\n By comparison, an analysis of 328 European and U.K. blue chips by executive compensation consultants WTW, formerly Willis Towers Watson<\/a>, showed that their CEOs\u2019 pay\u00a0rose 7%<\/a>\u00a0to almost \u20ac4 million last year\u2014a sizable sum, but a small fraction of their U.S. peers\u2019.<\/p>\n<\/div>\nBoard directors and high CEO pay<\/h2>\n