Median Pay Of Ceos Rises 15 Percent In 1995 Not Since The 1980s Has So Large An Increase Been Reported For Nation’s Top Executives
A preliminary survey of the compensation of chief executives at a number of America’s largest corporations indicates that executive pay may have risen last year at the fastest rate since the mid-1980s, when pay for performance became the guiding principle for rewarding corporate chiefs.
The median salary and cash bonus rose nearly 15 percent in 1995, to more than $2 million, for chief executives at 76 of the largest 150 companies in a survey conducted by an expert on executive pay. That compares with median pay increases for chief executives at large corporations of 11 percent or less since 1988.
Add the value of other compensation, mostly in the form of options to buy company stock at special prices, and the median increase in total compensation rose 31 percent last year, to nearly $5 million.
Swelled by sharply rising stock prices, this estimated increase was nearly double the rise in 1994 and triple the one in 1993 for those among the 76 executives in their jobs that long.
The increases in executive pay come against a backdrop of stagnation in the earnings of most Americans. The pay of chief executives of publicly traded companies, who number in the thousands, has been rising at an average annual rate of nearly 9 percent since 1990, according to Graef Crystal, the compensation expert who conducted the survey.
But the wages and salaries of the nation’s workers have never risen by more than 4 percent a year over the same period, the Labor Department reports. Lately the rise has been under 3 percent a year.
While raises for chief executives have for years outpaced what most other people get, the early returns for 1995 are especially significant at a time when some chief executives have been criticized for being rewarded with hefty pay increases for decisions that result in the layoff of thousands of employees.
“Their incentive pay encourages anything that increases the value of the company’s stock, and in some cases that means downsizing,” said Stephen F. O’Byrne, senior vice president of Stern Steward & Co., a consulting firm.
But many chief executives argue they are being rewarded for making critical decisions that play a big role in determining whether their companies will sink or swim in a highly competitive world.
Their large increases in compensation reflect, they say, the valuable executive skills that have made corporate America more successful in recent years, and have enriched their stockholders as well as themselves.
“Most of the escalation in CEO pay reflects healthy increases in profits and shareholder gains,” said Jerry Jasinowski, president of the National Association of Manufacturers. “That should be applauded.”
All this only adds fuel to the growing debate over the pay of chief executives. This is especially evident when chief executives receive big raises in years when their companies’ performance lags, a phenomenon widely evident last year among the 76 surveyed.
The gap between the pay of the typical worker and chief executive creates “an incredibly privileged class of people,” said Richard Freeman, a Harvard labor economist.
“These executives are hard-working, driven guys, and if you give them $1 million instead of $10 million, they are still going to be very motivated.”
Some experts argue that judging a chief executive’s performance is an inexact science at best.
“No one has been able to measure the value of a chief executive,” said Nancy Rose, a management expert at the Massachusetts Institute of Technology, who has been trying to do exactly that. “There are so many factors that go into a big corporation’s performance, other than what the CEO does. But if you tie his pay to the stock and stock prices go up, then he gets the credit.”
xxxx THE GAP WIDENS The gap between the pay of the typical American worker and chief executive was 30-to-1 in the 1960s. Today it is more than 100-to-1, according to Richard Freeman, a Harvard labor economist