In 2019, the average top CEO’s pay increased 14% from 2018 to $21.3 million. Sundar Pichai, the CEO of Google’s parent company, Alphabet, earned $280,621,552 in total compensation—more than 1,000 times the income of a median company employee.
Pichai tops the new list of “100 Most Overpaid CEOs,” the seventh annual report published by As You Sow, a nonprofit promoting corporate social responsibility through shareholder advocacy. The report, subtitled “Are Fund Managers Asleep at the Wheel?” finds that, while shareholder opposition to this excess is growing, many of the biggest financial fiduciaries still did not vote against excessive CEO pay in last year’s annual shareholder meetings.
The report calculates how much CEOs should have earned in 2019 based on total shareholder return over the past five years, and then calculates the surplus pay they received; for instance, the report suggests that 95% of Pichai’s salary (a total of $266,698,263) was excessive. It found that, in Alphabet’s case, the CEO-to-employee pay ratio was 1,085:1; The Walt Disney Co.’s, ranked fifth, was 911:1; and The Kraft Heinz Co.’s, in sixth place, was 1,034:1.
The report also found that many companies were “repeat offenders,” the worst being Discovery, Disney, and Comcast. Their CEOs have been paid more than $1 billion in seven years, even though the businesses have consistently underperformed financially. In the case of Discovery, each of its 9,000 employees could have earned more than $40,000 had the company simply reduced CEO pay to $12 million from $15 million (or used the money to pay employees additional dividends).
But, the report does note that shareholder opposition to excessive CEO pay has grown, despite the fact that insider ownership sometimes masks this trend, says the report’s author, Rosanna Landis Weaver. Through analysis, As You Sow was able to separate the insider managers from institutional fund managers, and found that, due to the oppositional votes of the latter, 15 companies from the S&P 500 failed to get 50% of the vote to approve CEO pay packages, up from 6 if non-institutional investors are counted. For Alphabet, 69% of institutional managers voted against the CEO package, along with 86% for Discovery, and 80% for CVS. Still, CEO pay on the whole continued to rise.
Much of the problem stems from the votes from the very largest financial fund managers, who the report suggests are “blindly following the recommendation of management to approve excessive CEO pay packages.” Most guilty are BlackRock and Vanguard, the two biggest investment management corporations. Only 2% of fund managers at BlackRock, which had $7.8 trillion under management, voted against S&P 500 compensations, and 8% voted against the companies on As You Sow’s list. In contrast, the opposition votes from managers at BNP Paribas, with relatively fewer assets, were 87% and 90%, respectively. Among pension fund managers, there was similarly large variation in commitment to votes opposing excessive pay packages.
These professionals would likely not want to be viewed as “promoters of the oligarchy,” said Robert Reich, author, economist, and former U.S. secretary of labor, in a press release. “The stark reality, though, is that their careers are dedicated to preserving and defending the system and to helping the oligarchy aggregate even more wealth and power.”
This spring’s proxy season, when most annual shareholder meetings happen, will assess CEO compensation in 2020, during the economic aftermath of COVID-19, when many businesses suffered. There’s already a debate over whether COVID-19-based adjustments to pay packages are appropriate: Should CEOs take cuts to reflect their companies’ losses? The report notes that it remains to be seen if chief executives will “be insulated from bearing the full brunt of the downside,” even as workers have lost jobs, and as employee wages “represent a lower share of the U.S. economy than almost any time since the 1940s.”
Overall, the report recommends that shareholders continue to speak up and have their “say on pay,” and “pressure the companies and funds in your portfolio with this evidence—which will benefit your long-term financial performance.” Reich writes that the largest financial managers, like BlackRock and Vanguard, should be “more firmly exercising their shareholder power to rein in excesses,” adding, “Corporations with overpaid CEOs should also take steps to support increasing the minimum wage.”