Executive pay packages often include stock options that won’t be collected by executives if the companies don’t reach set performance targets. In some cases, the numbers also include perks like the use of corporate planes and security details. Thanks to Dodd-Frank, we can now know more about top executive pay than about the pay of our co-workers.
For the first time, the rules require another set of numbers: “compensation actually paid” during the year. This is a seemingly straightforward concept that requires complex calculations. But, basically, it includes the change in value of previously awarded stock options.
These numbers are also staggeringly high. For Mr. Pichai, his “compensation actually paid” in 2022 was $115,820,786. For Mr. Scherr, it was $132,128,569. Peloton’s proxy didn’t include this number for Mr. McCarthy. For Mr. Rapino, it was $35,618,299.
So what should we make of high compensation levels, year after year?
I don’t object to C.E.O.s earning more than me, especially when, as a shareholder, I benefit when their decisions contribute to an increase in the value of company stock. And as a working guy, I’m pleased when C.E.O.s help make me — and my fellow employees — more prosperous.
It’s the vast gap in pay that stops me.
To put the size of this disparity into perspective, consider that Peter F. Drucker, the economist and management guru who died in 2005, said most workers understood that C.E.O.s would be paid more. But he also cited studies that showed it felt “about right” when the C.E.O.s received 10 to 12 times what workers earned.
It’s difficult to make precise comparisons with C.E.O.-worker pay ratios of other eras because the current methodology for calculating them wasn’t standardized until 2018. But there’s no doubt that there was far less pay inequality in the United States during the 1960s and 1970s. One study found that the pay ratio for big companies was less than 20 well into the 1970s. By 1989, it had reached the 40s, a level that Mr. Drucker found excessive.
In the 1990s, the Clinton administration, saying it would rein in executive pay, embarked on a major tax “reform,” with unintended consequences. By limiting the deductibility of executive compensation to $1 million, while leaving a gaping loophole — stock options and bonuses tied to corporate performance — the policy contributed to the rise of outsize pay packages.
