CEOs Who Look Overpaid to Americans Seem Just Right to Boardsby
Stanford research shows 71% of directors say CEO pay is fair
About 74% of public view top executives as `vastly overpaid'
More than 70 percent of directors of the biggest U.S. companies say top executives’ pay is in line with performance. That’s a blunt contrast to the view of almost three-quarters of Americans, who consider corporate bosses overpaid, Stanford University research shows.
The disconnect, highlighted in two Stanford studies, comes as both Republican and Democratic presidential candidates criticize compensation as too high. Along with the big majority of directors happy with chief executive officer pay, 84 percent of CEOs said they feel their pay is in line, according to one of the reports, which was done with executive recruiter Heidrick & Struggles.
“The gap between Wall Street and Main Street is pretty wide,” said David Larcker, a Stanford business school professor who worked on both studies. “There’s a populist appeal to making changes, whether that’s good or bad.”
The average CEO at Standard & Poor’s 500 companies made 373 times the average worker pay in 2014, according to research by the AFL-CIO union. Company-provided data on pay ratios won’t be available until 2017 under new a rule approved in August by the U.S. Securities and Exchange Commission that was part of the Dodd-Frank Act of 2010.
The average pay for an S&P 500 CEO was $12.2 million in 2014, according to researcher Equilar Inc., while production and non-supervisory employees in the U.S. earned an average $36,134, according to the AFL-CIO.
Republican front-runner Donald Trump told the CBS program "Face the Nation" in September that CEO pay was a "total and complete joke." Democratic candidate Hillary Clinton has also been critical of executive pay practices.
In a separate Stanford survey of public opinion on CEO compensation, only 16 percent of Americans said CEOs deserve what they receive, and 62 percent said CEO pay should be capped in some way. The respondents suggested that top executives should get roughly 18 times worker pay, on average, according to the study. Almost half said the government should intervene.
The surveyed directors said that about 65 percent of a company’s overall performance is linked to its CEO and management team. Stanford’s Larcker said the risk for companies in reducing pay or adding an upper limit to CEO compensation is that “it might discourage the best candidates from running big companies.”
“We have directors who see the CEO as very important to the value of the company,” Larcker said. “Regular people think the executives should get paid less.”