It’s time to take off the hair shirt in the corner office and slip into something more comfortable.
CEOs at the U.S.’s biggest 100 companies got a median pay raise of 6.8% last year, according to The Wall Street Journal— more than offsetting the cut many chiefs took the previous year.
The reason for the improvement isn’t hard to find. The stock market had a much better year in 2016, with the benchmark S&P500 index rising 9.5%. Add that to higher dividends and buybacks, and you find that total shareholder reruns at the companies surveyed rose 17% last year, up sharply from 4.5% in 2015. That pumps up CEO pay because stock awards are becoming an ever-bigger part of total compensation, while salaries and cash bonuses are becoming less important.
The WSJ’s analysis showed that median pay for the CEOs in the sample rose to $11.5 million last year, against a broader sample median of $10.8 million in 2015. It found that more than twice as many companies raised CEO pay as cut it. Meg Whitman, who split Hewlett-Packard into two companies in its fiscal 2016, was one of those to profit most, making $35.6 million (that’s more than double what she took home in fiscal 2015).
The level of CEO pay came increasingly under scrutiny in the wake of the financial crisis and the Great Recession, which exposed the sharp rise in inequality in compensation within companies, and a continued high level of tolerance of sky-high compensation from company boards even during the downturn.
President Barack Obama had planned to introduce a rule that would have forced companies to publish the ratio of CEO pay to that of the in-house median in an effort to tackle what Democrats saw as boardroom excess. However, President Donald Trump’s administration has signaled it will scrap the rule, as companies are having a hard time reconciling it with their individual and often complex formulas for rewarding top managers.
Many are still revamping their pay policies to make sure that managers put the long-term good of the company above short-term profits. For example, IBM CEO Ginni Rometty, who on the face of it got a 65% raise in 2016 to $32.7 million, won’t see the bulk of that money for another two years because most of it is in restricted stock. IBM’s stock outperformed the market last year, rising 21% as the company made progress in migrating its business services to the Cloud and rolling out Watson, its flagship artificial intelligence product.
In similar vein, Goldman Sachs cut CEO Lloyd Blankfein’s cash bonus by a third this year and linked all of his stock options to future rather than past stock performance.
Among others who took pay cuts last year were Apple’s Tim Cook and General Electric’s Jeff Immelt.
UPDATE: This article has been updated to add context to Rometty’s compensation package for 2016.