Are America’s CEOs overpaid?

oct. 27. 2023

Jim Farley, Ford’s chief executive, has argued that the 36% pay rise over four years demanded by the striking workers would cripple his business. The uaw has countered that the average pay of the big three’s ceos is 40% higher than it was in 2019, compared with 6% for the union’s members, which is well below inflation. Last year Mr Farley raked in $21m in pay, Carlos Tavares, his counterpart at Stellantis, $25m(대략 300억 원)and Mary Barra of gm, $29m. The average full-time uaw member made less than $60,000.

America’s bosses are certainly well compensated. After languishing in the 2000s, median pay for ceos of big companies in the s&p 500 index has climbed by 18% over the past decade, adjusting for inflation, twice the rise in the median full-time wage in America. The typical s&p 500 boss earned more than $14m last year, according to figures from MyLogiq, a data provider. That is around 250 times as much as the average worker. It is also more than bosses earn in Britain (where chiefs of ftse 100 firms took home just shy of $5m), let alone in France and Germany (where ceos are paid still less). Some American corporate chieftains rake in many times that. In 2022 Sundar Pichai of Alphabet, a tech titan, received a $218m stock award, following a similar-sized bounty in 2019. In 2021 David Zaslav of Warner Bros Discovery, a media giant, received stock options worth an estimated $203m.(대략 2200억 원).

Investors, for their part, do not seem overly bothered. As Lucian Bebchuk of Harvard Law School explains, America’s big institutional investors pay little attention to the market-wide level of compensation, focusing instead on what share of a ceo’s pay is tied to the firm’s performance, and on how much they earn relative to other bosses.

Ordinary Americans, though, are furious. A survey in 2019 by David Larcker and Brian Tayan of Stanford University found that 86% of them thought bosses were overpaid. Is it time, then, to rein in ceo pay?

Judging by the European experience, paying bosses less is not obviously a good idea. The earnings gap between American and European bosses is partly the result of less competition for executives in Europe, which has fewer big firms. It also reflects a more egalitarian attitude to pay that has not translated into better performance. Europe’s firms exhibit lower sales growth, profitability and shareholder returns, and its workers are less productive. All that contributes to the continent’s sluggish economic growth.


In practice, though, shareholders should watch for two things. For one, the American market for ceos is far from perfectly efficient. Many bosses loom large over their boardrooms, and may cow notionally independent remuneration committees. Two in five s&p 500 ceos also chair their boards. A recent survey of American company directors by pwc, a consultancy, showed that one in two thought executives were overpaid.

A more immediate concern is that paying vast sums to bosses when times are tough for common folk can have unwanted consequences, if it emboldens employees to make demands that their companies cannot afford. This risks happening in Detroit, which must compete globally with lower-cost carmakers. The free market for ceos, in other words, is also subject to political economy.