Tesla shareholders recently voted to support a pay package worth $46 billion that the company board of directors had offered to chief executive officer Elon Musk last year. While that particular deal is orders of magnitude beyond any other pay package on the planet, the compensation that many big companies provide to their CEOs – particularly in the U.S. – continues to boggle the mind. Is CEO pay getting out of control?

Executive compensation packages at most large companies today includes salaries, the value of stock and options grants, plus perks such as loans or corporate jet travel. Companies are required to report all this annually thanks to new rules introduced in 2010 through the Dodd-Frank Wall Street Reform and Consumer Protection Act. Jeff Sommer at the New York Times, working with executive compensation research firm Equilar, has compiled the data for 2023. Here are the three highest paid CEOs last year (excluding Musk whose compensation is currently undergoing litigation):

• Jon Winkelried of TPG, a private equity firm, received $199 million
• Harvey Schwartz of Carlyle Group, another private equity firm, received $187 million
• Hock Tan of Broadcom, a semiconductor and infrastructure software firm, received $162 million

Sommer also reported that the median pay of the 100 highest paid CEOs at publicly-traded companies in 2023 was $29 million. Which means half of them made more than that. Not a bad return for one year’s worth of employment.

But before you start excoriating our country’s top business leaders for egregious remuneration, there is perhaps a fairer way to look at it: determining the pay gap between the CEO and the average worker. After all, if everyone in the company is sharing in the largesse then that level of CEO pay might be considered acceptable.

We can compare the size of the CEO’s pay relative to the size of the average worker’s pay by calculating the pay ratio (the first number divided by the second). Let’s take a look at the pay ratios for the three companies above for 2023:

• TPG: 683:1
• Carlyle Group: 813:1
• Broadcom: 510:1

In other words, Schwartz’ pay at Carlyle Group was over 800 times higher than the average pay of the employees at his firm last year. Does that make him sound greedy to you? If you think that’s extreme, Sue Naby’s CEO pay at Coty (a beauty & fragrance company) was 3,769 times greater than her employees’ average pay. I wonder how Coty’s workers feel about that.

According to statista.com, the worker to CEO pay gap in the 1960s and 70s was less than 30 to 1. By 2023 that difference had exploded to more than 300 to 1. And while the pay gap has been expanding worldwide, it remains significantly wider in the U.S. than in other countries. In 2018 (the latest year for which statista.com has such data), the CEO pay ratio in Germany was 136:1, in Canada 149:1, and in the U.K. 201:1. The U.S. topped the list at 244:1.

To be fair, the bulk of a CEO’s compensation comes from the equity component, and when the stock market does well CEO pay follows suit. Nonetheless a company’s leadership has wide latitude when it comes to the allocation of its financial resources. It would certainly be more equitable if they would value their rank-and-file workers a little more and their top executives a little less.

Here’s a link to Sommer’s article: https://www.nytimes.com/2024/06/07/business/ceo-pay-compensation-stock-market.html.