Sorry, Bernie: New Study Shows Inconvenient Truth About CEO Pay

Is it any wonder business has a black eye? “Want to Make Money Like a CEO? Work for 275 Years,” blared The New York Times earlier this year. “The Average CEO Makes as Much Money in One Day as the Typical Worker Earns in a Full Year,” bellowed Money (citing AFL-CIO data). The Wall Street Journal’s tone was more measured (“How Much Do CEOs Make?”), but the story was as flawed as the rest.

The problem, of course, is that they’re all based on data for the CEOs of America’s largest public companies. Of the roughly 30 million businesses in the United States, fewer than 6,000 are publicly traded and only the largest 8 percent of these public companies make it into the S&P 500.

Yet most media outlets repeat the $12.1 million median annual pay package statistic for CEOs of S&P 500 companies in 2017, leading the public to mistakenly assume that this 0.002 percent of companies is representative of all CEOs.

Look at data for all U.S. CEOs—as we do each year—and you get a different story. Chief Executive Research surveyed 1,631 companies in April through June of 2018 about their 2017 fiscal year compensation levels and practices, as well as their current and expected compensation levels for senior executives for the remainder of 2018. (Detailed data from this survey is analyzed and presented in our annual CEO & Senior Executive Compensation Report for Private Companies.)

The median private company CEO total compensation package for 2017? $350,622. For the record, that’s just 6.7 times the median income for all U.S. workers, not 275 times. Sorry, Bernie.

Mind The Gap

Of course, not every CEO is paid the median. Private company CEO compensation is highly correlated with the size of the company. The 2017 median total compensation package for CEOs of companies with revenues of $1 billion-plus was more than five times that of CEOs whose companies generate between $100 and $250 million in revenues. The median CEO running a company with between $10 million and $25 million in revenues earned 52.9 percent of the total compensation of the median CEO of a company with revenues of $100 million to $250 million.

Ownership structure, as you’d expect, is the other huge factor in compensation. CEOs of private equity-owned companies had the highest total pay packages overall, with a median compensation package 87.7 percent higher than that of sole proprietor CEOs. That differential, however, reflects a premium for the shorter tenure PE CEOs face—58 percent are gone within two years.

While the gaps between the compensation packages at different ownership types are significant, some of this difference is also attributable to average company size by ownership type. Among companies with more than $100 million in revenues, CEOs running sole proprietorships earn only 3.5 percent less than their private equity-owned counterparts.

A similar situation occurs with CEOs of venture capital-backed companies with revenues between $10 million and $99.9 million—the median CEO of a venture capital backed company earned 90.8 percent of the median CEO running a PE-backed company in this size range.

Silent Majority

Across all CEOs in our survey, median 2017 cash compensation (base salary and bonus) was $321,022—91.6 percent of the total compensation package—and the “at risk” portion (i.e., bonuses and incentives) was $71,022 or 28.4 percent of their base salary.

For this year’s median survey participant, this represented no increase in either their salary or bonus vs. the prior year. Meanwhile, top-quartile CEOs enjoyed increases in both their base salaries and bonuses—3.25 percent and 5.50 percent respectively.

The vast majority of CEOs in the study did not record any equity appreciation over the past year, nor did they receive any new in-the-money options or equity grants.

Median base salaries in 2018 were flat with the prior year overall, but median bonuses are expected to increase to $90,000, for an overall cash compensation increase of 5.9 percent.

Not bad. But not Bezos, either.

Detailed information on salaries, bonuses, equity grants, benefits, perks, as well as how these elements vary by company size, industry, ownership type, geographic region and other variables is available in the full 2018-2019 CEO & Senior Executive Compensation Report for Private Companies: CompReport.ChiefExecutive.net.