CEOs Widen Income Gap Over Staff as Survey Shows 5.5% Pay Jump

  • Consultant’s report for 2016 indicates greater disparity
  • Equities rally not fully driven by better company performance

American corporate bosses continue to get bigger raises than their workers.

Chief executive officers at 42 public U.S. companies that have filed proxy statements for fiscal 2016 saw their pay packages grow by a median of 5.5 percent from the prior year, according to a report issued Wednesday by Compensation Advisory Partners, a consulting firm. That compares with the 2.8 percent increase in December from a year earlier for average hourly earnings of private non-farm employees, according to data from the U.S. Bureau of Labor Statistics.

While the executive group represents only a small subset of companies, the findings may suggest a widening of the income-inequality gap that was a core issue in the 2016 presidential race. Surveyed companies’ stocks rose more than in 2015 while their earnings growth slowed, a situation that can be tricky to navigate for pay-setting directors.

“Anytime operational results differ from total shareholder return, there can be issues when it’s time to pay bonuses,” Melissa Burek, a founding partner at the New York-based firm, said in a phone interview. “One year of flat bonuses while the stock is taking off may be OK. Two years don’t make executives feel so well. But again, executives do reap the benefits of that through their long-term programs.”

The divergence between stock prices and company earnings has been noted by analysts. The recent rally in U.S equities has been driven by investors chasing gains, not an improvement in earnings prospects, Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist, wrote in a note dated March 2.

Gap Between CEO and Worker Pay: QuickTake

The 2016 CEO pay increase mainly came from a boost in awards that pay out over several years, typically in the form of stock grants at least partially linked to performance. Annual incentives, which usually come as cash bonuses, rose at a lower rate. Salaries remained flat.

A 5.5 percent increase is relatively standard for CEO pay, according to Burek. In 2014 and 2015, early filers saw median increases of more than 10 percent, the firm’s surveys revealed.

The pay figures include salaries, cash bonuses and the value of equity awards on the day they’re granted. Those awards can take years to vest and vary with stock prices, so estimating their potential future value is difficult.

— With assistance by Scott Lanman

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