The United States economy isn’t doing relatively well, but salaries among CEOs and other executives are, according to USA Today’s analysis of companies on the Standard & Poor’s 500 led by the same CEO for the past two years.
The report discovered that last year’s median pay that consists of salary, bonus, incentive awards, perks and gains from vested shares and exercised stock options increased by 13 percent to $10.5 million. The boost came from rising stock prices and experts say that figure is likely to rise this year.
Some of the CEOs to make the list include those from both Wall Street and Silicon Valley, such as Facebook CEO Mark Zuckerberg, Starbucks CEO Howard Schultz, Jim Gallogly, head of petrochemicals manufacturer LyondellBasell, and Discovery Communications’ David Zaslav.
Much of the high pay came from increased corporate earnings that stem from economic growth and job cuts. The latter has many frustrated because CEOs are making large sums of money each year while the average median annual wages for the country’s nearly 105 million full-time workers were $40,872 last year, up just about one percent from the previous year.
U.S. companies are responding, though, according to a report in Reuters. Due to pressure from shareholders, some of the largest corporations are scaling back on lucrative perks offered to executives, such as access to the company jet, luxurious vehicle rentals, keys to the yacht, expensive gifts and many more perks that executives are given on a regular basis.
Although these kinds of perks are on the decline, other benefits programs are making up for it, such as enhanced life insurance policies and improved financial planning assistance.
“Companies are really digging in on identifying what areas it makes sense to focus their benefits programs,” Robert Newbury, director at pay consulting firm Towers Watson, told the news agency.
“You will see companies spend less on areas that raise red flags with investors.”
The question remains: is it wrong to pay CEOs obscene annual salaries?
There is a large debate about it and as Peter Schiff, president of Euro Pacific Capital, showed in a video during the Democratic National Convention in 2012, some want to either ban or cap profits.
Some economists, meanwhile, have likened it to “politics of hate and envy,” says economist Walter E. Williams, author of “Race & Economics.” Writing in an op-ed last year, he noted that CEOs tend to make a small percentage compared to what movie stars and athletes make: Tom Brady’s $31.3 million, Hugh Jackman’s $55 million and Kobe Bryant’s $23.5 million.
Yet, no one is complaining nor should they, argues Williams.
High salaries are determined based on effectiveness, value, risk and encouraging the particular person to stay with the organization. For instance, if Kobe Bryant can win championships and perform on a high level each game, sell out arenas and lead the team in merchandise sales – which he has been doing since he arrived on the scene – then the Los Angeles Lakers is willing to pay him millions of dollars a year – also to compete against teams that might lure him from moving away from Los Angeles.
Another example occurred last year when it was reported that Matt Damon would earn $3 million for a 20-second coffee advertisement. The Nespresso brand was willing to pay a large amount of money to an actor for very little work in the hopes of him increasing revenues – Damon is a box office powerhouse with millions of fans, many of which might buy the coffee because he appeared in a commercial for the company.
The same concepts could be shared with CEOs: shareholders and the Board of Directors might be willing to pay a CEO $25 million a year if he can raise the stock price and, if successful, for him or her to stay with the firm.
Robert Murphy, author of “The Politically Incorrect Guide to Capitalism,” explains that many CEOs wouldn’t take the job “where you will earn $250 million if the stock price goes up, but $100,000 if the stock price tanks. Does that sound like a good deal? Would [a company] attract many qualified candidates with such a proposal?”
