CEO Compensation: What's the Limit of 'A Lot'?

Should corporate executives be paid a lot?

Yes, says management expert David Souder, a professor in the UConn School of Business Boucher Management & Entrepreneurship Department. But, he says, "What's the limit of 'a lot'?"

“It’s proven very hard to determine where it stops being the appropriate amount of ‘a lot,'" says Souder in an interview with Hearst Connecticut Media.

The highest-paid CEO in this year’s Equilar 100 was Peloton Interactive’s Barry McCarthy, whose awarded compensation totaled about $168 million. At No. 2 was Apple’s Tim Cook, whose awarded remuneration amounted to about $99 million.

Equilar’s survey also highlighted the huge gap between CEO compensation and the income of rank-and-file workers. Last year, there was a median ratio of 288 between CEO compensation and median worker pay; the ratio was 254 in 2021. The compensation awarded last year to Cigna’s Cordani equated to about 277 times his company’s median worker pay of $75,627, according to Equilar. Including several thousand employees based in Connecticut, Cigna operates globally with more than 70,000 employees.

At many companies, shareholders weigh in on executive compensation through “say on pay” proposals that let them cast advisory votes. Shareholders typically endorse remuneration, as seen in the results of Cigna’s 2023 shareholders meeting that was held on April 26. About 221 million votes were cast in support of the company's executive compensation, compared with nearly 30 million votes against, about 18 million “broker non votes” and nearly 612,000 abstentions.

Some progressive elected officials such as Sen. Bernie Sanders, I-Vermont, and Sen. Elizabeth Warren, D-Massachusetts, are unhappy with CEO compensation levels at large companies because they believe their pay constitutes corporate greed that hurts rank-and-file workers. Among their proposals, they have sought to pass legislation that would increase taxes on companies that pay their CEOs more than 50 times the median level.

“The pay disparities raise questions that are very hard to answer,” Souder said. “If you want an experienced chief executive, and they’ve been paid at these (exceptionally high) levels, then you have to also pay at these levels. And nobody wants a below-average CEO. So you end up with these subtle underlying pressures that cause CEO pay to rise.”

David Souder specializes in strategic management and is available to speak with the media. Click his icon to arrange an interview today.