The salaries of the bosses of large American companies are increasing much faster than the average remuneration, without the shareholders finding fault. The latter are satisfied with the evolution of the stock markets and increased transparency.
Between 2017 and 2023, the median compensation of a manager of a company listed on the S&P 500, which brings together 500 of the largest American companies, increased by nearly 40%, according to the Equilar firm, compared to only 27% for the average. of employees in the United States, to reach 16.3 million dollars.
This jump did not move the shareholders, who only rejected the boss’s remuneration plans this year twice when the question was asked to them at the general meeting, or 0.5% of cases, according to the firm. ISS-Corporate. In 2021 and 2022, a series of setbacks hit several big names on Wall Street, from Starbucks to JPMorgan Chase, including Intel and General Electric.
‘Investors are finally rebelling against bosses’ massive pay rises,’ was the headline in Time magazine in June 2022, before this semblance of a movement disappeared as quickly as it had taken shape. “Shareholders tend to vote against plans after poor company or stock price performance,” says Kevin Murphy, a USC professor and executive compensation expert.
50 billion for Elon Musk
However, at the time of the revolt, the coronavirus pandemic had severely shaken the economy and the financial markets. ‘Some prices had rebounded, but not all,’ he recalls. Conversely, the current market context, which has seen Wall Street set dozens of records since the start of the year, does not encourage protest. Tesla shareholders even validated Elon Musk’s massive compensation plan on Thursday, valued at just under $50 billion.
The Dodd-Frank law, born from the 2008 financial crisis, has required, since 2011, listed companies to submit the remuneration of their executives to a shareholder vote at least once every three years, a provision called ‘Say on Pay’ (opinion on remuneration). The vote is only consultative, but in the event of refusal, the vast majority of boards of directors renounce and modify the package.
‘Say on Pay’ introduced transparency into the business world, which ‘abandoned bad practices. From this point of view, I think things are much better,’ says Rosanna Landis Weaver, of the shareholder defense association As You Sow.
Do like the others’
The Dodd-Frank Act also requires companies to publish the ratio between the compensation of the principal executive officer and the median salary within the company. In 2023, a boss received, on average, 196 times the median salary of his company, compared to 158 five years earlier, according to Equilar.
According to a survey published this week by Bentley University in partnership with the Gallup Institute, 82% of Americans consider it ‘somewhat’ or ‘extremely’ important to ‘avoid a very significant pay gap between bosses and average employees’. ‘It’s a sensitive subject,’ recalls Kristina Minnick, professor of finance at Bentley, in the survey. ‘High salaries can attract the best people, but they can also be seen as excessive.’
However, supporters of limiting executive remuneration do not find resonance within a broader electorate. Bills tabled in recent months by Alexandria Ocasio-Cortez and Bernie Sanders, two figures of the American left, remain blocked in the House of Representatives.
‘Say on Pay’ has prompted many businesses to turn to specialist consultancies and use benchmarks to compare their plans with those of the rest of the market. Therefore, “there are very few recent examples of a CEO who received a huge sum once removed,” argues David Yermack, professor of finance at NYU University.
These analysis firms are also paid by investors, to whom they recommend whether or not to approve a boss’s remuneration before an AGM. The best known are Institutional Shareholder Services (ISS) and Glass Lewis. As a result, ‘in ten years, compensation programs have become more homogeneous, more similar to each other’, whether in amount or structure, according to Marc Hodak, of the firm Farient Advisors.
They thus minimize the risk of dispute, underlines Kevin Murphy. ‘The best way to avoid making waves is to align yourself with what everyone else is doing.’
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