Ask Laz: What is fair pay for a chief executive?
Merilee says she’s been looking at the compensation packages of chief executives of the charities she donates to. They’re all over the map.
This got her wondering: “What is considered ‘fair’ compensation for a CEO?”
It’s a question many people are asking in this era of income inequality.
First of all, no one begrudges chief executives being well-compensated for what must be a very challenging gig. It’s not a job just anyone can do.
At the same time, chief executives aren’t perfect. On Wednesday, Volkswagen’s top dog, Martin Winterkorn, resigned amid the growing scandal over VW cheating on emissions tests.
So what’s the magic number for chief executive pay? Short answer: There isn’t one. It’s whatever they can get away with.
That’s not how top execs would put it, of course. They’d say their compensation reflects their value in a marketplace of corporate leadership as defined by their peers.
But that’s just another way of saying chief executives are paid whatever other chief executives have gotten away with. It’s a cycle that keeps pushing paychecks higher. Every fat compensation package sets a precedent for the next fat package.
According to the Economic Policy Institute, average chief executive pay at the 350 largest U.S. companies soared nearly 1,000% from 1978 to 2014, while the compensation of non-supervisory employees rose 11%.
Big-company chief executives’ compensation rose by an average of 5% last year to a median of nearly $10.3 million, according to the consulting firm Mercer. That’s a smidgen more than the median 4% increase in chief executives’ pay in 2013.
The average U.S. worker saw his or her pay go up over the last 12 months by 0.3%.
The typical head of a U.S. company now makes 373 times more than the typical worker, according to the AFL-CIO labor union.
Is that fair? It depends where you’re sitting. From the corner office, it’s a sweet deal. VW’s Winterkorn was Europe’s top earner last year, pocketing nearly $17 million in total compensation.
For everyone else, it’s not hard to conclude that something is very wrong with this picture.
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