2018 in general was not a great year for stocks, with the S&P 500 down 6.2%. However, the CEO compensation of S&P CEOs continued to rise, reaching a median of $12.4 million in 2018. What explains this unprecedented rise in executive compensation, and is it reason for concern?
Our viz highlights the results of a Wall Street Journal report on the 2018 compensation of S&P 500 CEOs. The two circles represent the CEO’s pay and the 2018 shareholder return of their company, respectively. Circles are scaled relative to size. A green circle indicates that CEO’s company had positive returns for the year; red indicates negative.
- Despite a poor year in stock returns, compensation for S&P 500 CEOs set another record high
- 2018 median compensation for CEOs of S&P 500 companies reached $12.4 million -- a monthly paycheck of $1 million
- Top 2018 earners were most likely to come from healthcare, media and financial sectors rather than tech
- A wide range of compensation includes some CEOs taking salaries of $1, such as Alphabet’s Larry Page and Twitter’s Jack Dorsey
Median compensation for S&P 500 CEOs hit $12.4 million in 2018, up from $11.7 million in 2017, with a median CEO compensation increase of 6.4%. The increase is in part due to what had been strong financial performance in 2018, until a December correction led to the worst year in stocks since the Great Recession. That makes for a wide disparity in the compensation of CEOs versus their company’s returns, as you’ll see in the viz.
Top 5 Highest-Paid CEOs
1. David M. Zaslav, Discovery. Total pay: $129.4 M. Shareholder return: 10.50%.
2. Stephen F. Angel, Linde. Total pay: $66.1 M. Shareholder return: 3.10%.
3. Robert A. Iger, Disney. Total pay: $65.6 M. Shareholder return: 20.40%.
4. Richard B. Handler, Jefferies. Total pay: $44.7 M. Shareholder return: -14.90%.
5. Stephen P. MacMillan, Hologic. Total pay: $42.0 M. Shareholder return: 11.70%.
Top 5 Lowest-Paid CEOs
1. Larry Page, Alphabet. Total pay: $1. Shareholder return: -0.80%.
2. Jack Dorsey, Twitter. Total pay: $1. Shareholder return: 19.70%.
3. A. Jayson Adair, Copart. Total pay: $203 K. Shareholder return: 82.20%.
4. Warren E. Buffett, Berkshire Hathaway. Total pay: $398 K. Shareholder return: 3.00%.
5. Valentin P. Gapontsev, IPG Photonics. Total pay: $1.7 M. Shareholder return: -47.10%.
One undeniable take-away from the data is that CEO pay is on the rise. At $12.4 million annually, the median CEO compensation exceeds $1 million a month.
This rise also far exceeds the earnings rise of average workers: the AFL-CIO estimates CEOs earn 287 times more than their average employee. Compare this to a 1978 estimate of 30 to 1. Of course, the way a CEO gets paid is very different than the average worker. They are not hourly or even strictly salaried workers: instead, their compensation is a variety of base pay, bonuses and even stock options.
Ironically, the CEOs of many of the most valuable companies earn the least compensation. You’ll see in our viz that both Alphabet’s Larry Page and Twitter’s Jack Dorsey took just a dollar. It’s more common to see such low CEO compensation in tech, where executives often hold large amounts of equity in the company, and look to an increased stock worth over salary for compensation.
In fact, only three of the top 25 highest-paid CEOs this year came from tech: instead the majority came from healthcare, media and financial companies. In the #1 spot is Discovery Channel CEO David Zaslav. At a compensation of $129.4 M, Zaslav earned nearly twice as much as the second highest earner, Stephen F. Angel of chemicals company Linde.
Does a compensation of $129 M seem like a lot for the CEO of a company that only gained 10% for the year? According to Discovery, Zaslav's pay is "nearly all performance-based.” Why “nearly?” As executive pay consultant Robin Ferracone explained to The Wall Street Journal, “People want to keep their CEOs and the best way to retain is through long-term incentives.”
To some, the “heads I win, tails you lose” nature of increasing CEO pay is reason for concern: regardless of actual company performance, compensation keeps rising. Not all, however, are critical of this phenomenon: economist Tyler Cowen argues that executives deserve higher pay due to the growing uncertainty and complexity of a highly technological economy.
Take a look at the viz. What results surprise you? Who deserves a raise? Or, is everyone overpaid? Will executive compensation continue its record-setting growth, and why? Let us know in the comments.
Data: Table 1.1