Many times, people who find out that part of
my business is focused on executive compensation consulting ask how I can
support “CEOs who are already making so much money.” I usually answer with a
variation of “but, hardly anyone makes as much as you think.” When I inform
people that most
(>75%) CEOs make salaries of less than $500,000 a year, I am often met
with exclamations about “multi-millionaires”, “people who control everything”,
“greedy executives”, "horrible pay ratios” and whatever other compensation
outrage has made the news in the past year. I know it’s hard to believe, but
most CEOs are paid in the middle of their range. So what is the middle?
Not
surprisingly, when I talk to CEOs about their pay, the reaction is often
similarly misinformed. You should see the reactions when I tell CEOs that about
50% of small companies pay their Chief Executive Officer $250,000, or less, in salary.
They have seen the articles. They watch the news. They know in their bones that
“hardly anyone makes that little.” There are about 400,000 CEOs in the United
States. That means hundreds of thousands of them do not make a million dollars
a year.
In
fact, less than 10% of CEOs have annual salaries north of $1 million dollars.
To be fair, CEOs at Fortune 500 companies do get paid an average
of $10.8 million in total compensation (depending on how it was measured
this number is quoted as high as $12.9 million). This amount is broken down approximately
into thirds. With one-third being salary and bonus, one-third “other
compensation” and one-third income from stock option exercises and vesting of
other equity awards. I should note that few in this group are paid salaries
above $1,000,000 due to 162(m) restrictions.
If
you take these 500 people out of the mix, you have about 399,500 CEOs left. The
vast majority of these have little in the way of equity with real intrinsic
value. Virtually none have anything in the way of high-end perquisites. And, a
huge percentage of these CEOs founded the companies they oversee. Most have
never heard of, nor care about, ISS and Glass Lewis. Most don't care about Say
on Pay, because they are large shareholders (or sole owners) of the companies
they oversee.
These
executives and the compensation professionals (internal or external) who
support them are constantly striving to align compensation with success. The goal
is seldom to pay at all costs. Pay for performance and well-designed
compensation programs are not just for the front-page executives who make
millions. Let’s be honest. Hardly anyone makes that much!
How
do you define “enough” for your CEO? Are they overpaid, or is that just one
more myth that compensation professionals need to dispel?
Interesting fact: Imagine the blue background
of the image accompanying this post represents the 400,000 CEOs in the US. The five
yellow dots would represent all of the CEOs at Fortune 500 Companies. Sometimes
it seems like we may focus too much on too little.
Dan Walter is the
President and CEO of Performensation an independent
compensation consultant focused on the needs of small and mid-sized public and
private companies. Dan’s unique perspective and expertise includes equity
compensation, executive compensation, performance-based pay and talent
management issues. Dan is a co-author of “The
Decision Makers Guide to Equity Compensation”, “If I’d
Only Know That”, “GEOnomics
2011” and “Equity
Alternatives.” Dan is on the board of the National Center for Employee
Ownership, a partner in the ShareComp virtual
conferences and the founder of Equity
Compensation Experts, a free networking group. Dan is frequently
requested as a dynamic and humorous speaker covering compensation and
motivation topics. Connect with him on LinkedIn or follow him
on Twitter at @Performensation and @SayOnPay.