Trends in CEO Pay

010 was another good year to make lots of money—if you were a CEO. CEOs of the largest companies received, on average, $11.4 million in total compensation last year, according to the AFL-CIO analysis of 299 companies in the S&P 500 Index. Overall, CEOs of the 299 companies in the AFL-CIO Executive PayWatch database received a combined total of $3.4 billion in pay in 2010, enough to support 102,325 jobs paying the median wages for all workers.[1]

The Wall Street executives who helped create the financial crisis and economic recession also did well. While cash bonuses fell, total compensation for Wall Street firms increased in 2010. The Wall Street Journal estimates that total compensation at large financial services companies rose 5.7 percent to a record $149 billion in 2010.

Are these CEOs being paid to expand their companies, grow the real economy and create good-paying jobs? Apparently not. According to the Federal Reserve, U.S. corporations held a record $1.93 trillion in cash on their balance sheets. A lack of business investment is one reason that more than 14 million Americans remain unemployed.

During the past decade, CEOs of the largest American companies received more in compensation than ever before in U.S. history. They supposedly deserved this money for increasing stock prices. Did they? On Dec. 31, 2010, the S&P 500 Index closed 19 percent below its high on March 24, 2000.

Over the past decade, shareholders—including workers—lost trillions of dollars in retirement savings through the collapse of the Internet stock bubble and the corporate accounting scandals at Enron and other companies. More recently, shareholders have suffered further declines from the bursting of the real estate bubble and the Wall Street financial crisis.

While CEO pay is still out of control on Wall Street and in the rest of Corporate America, shareholders now have new tools to fight back. CEOs must now give their shareholders a “say on pay,” thanks to the Dodd-Frank Wall Street Reform and Consumer Protection Act that President Obama signed in July 2010.

Starting in 2011, shareholders of publicly traded companies are required to be given a say-on-pay vote on executive compensation. Although these votes are not binding, they will encourage boards of directors to reform their companies’ executive compensation. No CEO wants to suffer the embarrassment of shareholders voting against their pay.

As a result, companies are under pressure to eliminate practices that are red flags for investors. Tax gross-ups, golden parachutes, corporate jet travel, preferential pensions and perquisites unrelated to performance are now under the microscope. Compensation is becoming more long-term and linked to measurable performance.

The Wall Street Reform Act also provides other protections for investors. Board of Directors’ compensation committees now must consist entirely of independent directors. Financial companies must ensure that their incentive pay plans do not create excessive risk.

But CEOs are pushing back. They particularly dislike the requirement that companies disclose to investors the pay disparity between the CEO and the typical worker. Congress required disclosure of this information because investors are concerned about growing CEO pay and its impact on pay disparities within companies.