Executive pay: How many millions does one CEO need?
Thanks to a new disclosure rule, we know that “Elon Musk was paid 40,668 times more than a median Tesla worker,” said Andrew Edgecliff-Johnson in the Financial Times. The rule requires American companies to “disclose the relationship between their chief executive’s compensation and that of their median employee.” Musk is an outlier, but the new rule reveals that the typical CEO made 254 times the pay of a median employee at his company; more than 1 in 10 made more than 1,000 times as much. The “issue of massive CEO paychecks is likely to be front and center during the [presidential] campaign,” said Ted Johnson in Variety. The debate gained steam when Abigail Disney, Walt’s grandniece, called out Disney CEO Bob Iger’s pay of $65 million—1,424 times the pay of the typical Disney worker. She urged Iger to give half his bonus to lower-paid Disney workers. What difference would halving CEOs’ bonuses make in their quality of life? she asked. “None. Zero. Maybe they can’t afford a third home.”
Unfortunately, pay ratios tell us “virtually nothing” about a company’s actual practices, said Steven Bank and George Georgiev in the Los Angeles Times. Do Disney employees own some company stock? “Do they receive benefits, training, and retraining opportunities?” Some investors, like BlackRock, “have started to demand information about human capital management practices as a way to assess how well a company is run.” But investors still need more “transparency on how pay is tied to performance,” said Robert Jackson Jr. and Robert Pozen in The Wall Street Journal. Many executives are paid through incentives based on adjusted earnings that require “accounting gimmicks” to meet. And while the SEC requires earnings releases that reconcile the adjustments, “those requirements do not apply to the reports that compensation committees of corporate boards disclose to investors.”
Bashing Big Business is in vogue, said Tyler Cowen in Time.com, but today’s executives aren’t just there to “run the company.” The main driver of the increase in CEO pay “has been the blossoming of superstar firms that sell an innovative product and have global reach.” Think Google, Facebook, Verizon, and, yes, Disney. There’s a limited pool of individuals talented enough to handle the demands of such enterprises. “It’s not popular to say, but one reason their pay has gone up so much is that CEOs really have upped their game.” Take Iger, said Jeffrey Sonnenfeld in Fortune.com. He’s “masterfully integrated the creative engines of Marvel, Pixar, and Lucasfilm,” and his purchase of 21st Century Fox “has transformed the entertainment industry.” He’s added 70,000 jobs and raised Disney’s stock price to historic highs. Sure, some boards “consistently reward poorly performing CEOs.” But in this instance, “Ms. Disney has chosen the wrong target.” ■