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66% of Americans give companies a failing grade for CEO pay

Westend61/Getty Images via CNN Newsource

Originally Published: 12 JUN 24 06:30 ET

By Matt Egan, CNN

New York (CNN) — Americans are fed up with massive CEO pay packages.

More than 8 in 10 (83%) Americans say it’s important for businesses to avoid a major pay gap between CEOs and average employees, according to early findings from an upcoming Bentley University-Gallup poll shared exclusively with CNN. That includes 56% who say this issue is “extremely important.”

And Americans continue to give corporations a failing grade when it comes to how they manage the yawning pay disparity.

Just 13% say companies are doing a good or excellent job at avoiding a major pay gap between CEOs and average employees. For the third year in a row, the vast majority – 66% — say companies are doing a “poor” job here.

The Gallup poll finds remarkable consistency across age groups and among men and womenon both questions.

Politically, the majorityof Democrats (96%), independents (83%) and Republicans (67%) agree that it’s important to avoid major pay gaps.

The findings show how the issue of CEO pay strikes a chord among many Americans, some of whom are struggling to make ends meet in an increasingly expensive world.

“CEO pay is an outrage. It’s atrocious. And it hugely undermines confidence in our institutions,” said Nell Minow, vice chair of ValueEdge Advisors, which advises institutional investors on corporate governance issues.

The poll comes as Tesla shareholders vote on whether to award CEO Elon Musk a massive pay package valued at more than $40 billion. Tesla plans to announce results of the shareholder vote — which is nonbinding — at Thursday’s annual meeting.

196 years to earn what a CEO makes

The issue is not just that CEOs make a lot of money. It’s that they make so much more than employees.

It would take the typical employee 196 years to make as much as their CEO made last year alone, according to an analysis by Equilar and The Associated Press.

“Instinctively, it doesn’t seem fair. How can a CEO make 196 times the average worker?” said Cynthia Clark, a professor of management at Bentley University. “Either the CEO is overpaid, the average worker is underpaid – or both.”

And yet the gap between CEOs and workers is widening.

In 2022, CEOs made 185 times the median employee, according to the Equilar study. CEO pay, including stock awards, soared by 12.6% last year.

The Equilar study indicates that the median S&P 500 employee received an annual pay increaseof about $4,300 last year. For CEOs, the annual pay hike amounted to $1.5 million.

Taxing excessive CEO pay?

The Gallup survey found little difference between generations on the CEO pay issue.

For instance, 70% of those aged 18 to 29 say companies are doing a poor job in avoiding a major pay gap between CEOs and average employees. That is similar to the 63% who said the same among those 60 years old and above.

Likewise, 67% of men say companies are doing a poor job here, compared with 65% of women.

Democrats were much more likely than Republicans to be critical of CEO pay practices, however.

The poll found that 81% of Democrats say companies are doing a poor job on avoiding a major pay gap, compared with 47% of Republicans. Nearly two-thirds (64%) of independents say companies are doing a poor job here.

In January, progressive lawmakers led by Sens. Bernie Sanders and Elizabeth Warren introduced the Tax Excessive CEO Pay Act, which would raise taxes on companies that pay their top executives at least 50 times more than the pay of a typical worker.

Of course, corporate boards are in a war for talent.

They are competing against each other to hire the CEOs that will position the company for success. If their rivals are paying fat pay packages, they can’t just ignore that.

‘Very troubling’

Still, even some former CEOs are startled.

“It’s gotten completely out of hand,” Bill George, the former CEO of medical device maker Medtronic told CNN. “What worries me is there is no ceiling on the amounts people are getting. That’s very troubling to me.”

Broadcom CEO Hock Tan led the way among S&P 500 CEOs last year, raking in $161.8 million.

FICO CEO William Lansing was the next-closest CEO, hauling in $66.3 million in total compensation.

George, currently anexecutive fellow at the Harvard Business School, was stunned by that figure.

“$66 million for a company that doesn’t even have $1 billion in sales? How do you justify this?” he said.

A FICO spokesperson defended Lansing’s pay package, noting that total shareholder returns under his leadership over the past 10 years is better than 99% of S&P 500 companies. The company also pointed out Lansing’s base salary last year was only $750,000.

“FICO structures its executive compensation to be consistent with industry best practices, including prioritizing long-term incentive pay that is based on the company’s performance and aligned with shareholder value creation,” the spokesperson said.

CNN has reached out to Broadcom for comment.

Boeing raised eyebrows in April by revealing that CEO Dave Calhoun was awarded $32.8 million in total compensation in 2023. That amounted to a 45% spike in pay despite the chronic losses and safety troubles at the troubled aircraft maker.

George said that when he was CEO of Medtronic from 1991 to 2001, he worried making too much money would cause a “loss of trust” internally.

“Today, it’s causing a real loss of trust among working-class people towards corporate leaders and anger towards big business. There is a backlash,” he said.

Pressure on boards

Starting in 2017, public companies were required to disclose the ratio between CEO pay and that of the median employee.

Some experts hoped that requirement, part of the 2010 Dodd-Frank law passed by Congress after the Great Recession, would help narrow the CEO pay gap by bringing transparency to the issue.

“Ironically, it has not reduced pay,” said Clark, the Bentley professor.

If anything, Clark said the data has only fueled pay by arming CEOs with data about what their competitors are making.

George agreed, saying: “I think people like being on these lists of highest-paid CEOs. It becomes almost an entitlement.”

Minow, the ValueEdge vice chair, argued there is “plenty of blame to go around” when it comes to CEO pay, including on shareholders for being “too lenient” and on the media for failing to hold directors accountable for outrageous pay packages.

Yet Minow said most of the blame lies with the boards of directors who approve pay packages in the first place.

“There is no possible way to justify CEO pay,” she said. “It makes people feel that there is a massive injustice in the world and gives them a cynicism that is not healthy.”

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