The pay-for-performance model appears to be broken, according to the As You Sow ninth annual report The 100 Most Overpaid CEOs: Are Fund Managers Asleep at the Wheel?, which focuses on how pension and financial fund managers hold companies accountable for excessive compensation.
R. Paul Herman, CEO and founder of HIP (Human Impact + Profit) Investor Inc., said of the report, "Higher pay should reward market-beating results, right? Wrong! Since our 2015 report, boards have approved exorbitant CEO pay packages for companies that lagged the S&P 500 by an annual average of -2%. Even worse, the 10 most overpaid CEOs—this year comprising all white men with an average age of 60, averaging $120 million in pay, seven times more than the average CEO—have dramatically underperformed the benchmark by -6% per year since we began this report. Boards are not holding CEOs accountable and failing shareholders in their fiduciary duty. The pay-for-performance system is clearly broken.”
The Numbers
Total pay for S&P 500 chief executives continues to increase. The average pay was $38,192,249, up 30.6% from last year’s average of $29,233,020. The median pay, less influenced by the massive stock awards that inflate pay at the very top, was $23,455,188, representing an increase of 8% over the prior year.
The gap between CEO and median worker pay has also increased. According to the AFL-CIO, the chief executives of S&P 500 companies made 324 times more than that of their median workers on average, up from a CEO-to-worker pay ratio of 299-to-1 in 2020 and 264-to-1 in 2019.
Shareholder opposition to pay packages continues to grow. In the S&P 500, shareholder votes against CEO pay continued its five-year upward trajectory to a high of 12.6% opposition, gaining 4.2 percentage points in votes against since 2017.
Companies with overpaid CEOs continue to underperform. Companies with the 10 most overpaid CEOs once again saw shareholder returns much worse than the S&P 500 index.
Beauty's Ranking on the List
Compensation packages in the report were calculated as overpaid based on a level of excess pay calculated by how the CEO’s salary stacks up to company performance compared to the S&P 500 index, the percent of shareholder votes against the compensation package, and the ratio of CEO pay to median worker pay.
#2 Estée Lauder Companies Inc., CEO Fabrizio Freda
#50 Johnson & Johnson, CEO Alex Gorsky
#51 Procter & Gamble Company, CEO David S. Taylor
