Executive pay has become a hot topic thanks in part to the widening pay gap between CEOs and average workers. The world’s highest-paid CEOs would argue that their leadership skills help generate big returns for investors, justifying their large paychecks, but critics of swelling CEO compensation packages rightfully point out stock market returns have lagged behind CEO pay-rate growth in recent decades.
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To make matters worse, there are plenty of examples of companies dishing out huge pay packages to CEOs that subsequently oversee significant declines in the company’s stock price. Here’s a closer look at just how much CEO compensation has grown, how the highest-paid U.S. CEOs have performed and which highly paid CEOs have completely flopped:
— CEO pay versus stock market returns.
— Five highest-paid CEOs.
— Most overpaid CEOs.
— Highly paid CEO flops.
— Takeaway.
CEO Pay vs. Stock Market Returns
The Economic Policy Institute releases an annual report on U.S. CEO compensation. The organization focuses on the compensation of the CEOs of the 350 largest publicly owned U.S. firms by revenue. The EPI found the average annual realized CEO compensation in 2022 was $25.2 million, down 14.8% from 2021 mostly due to the reduced value of exercised stock options. That average is up from just $1.9 million in 1978, which is not necessarily troubling in itself. However, the CEO-to-worker pay ratio in 1978 was around 30.9, meaning CEOs were earning roughly 31 times the pay of their average employees at the time. By 2022, that ratio had jumped to 342.8.
In percentage terms, the discrepancy between CEO pay growth and worker pay growth is striking. From 1978 to 2022, CEO pay increased by an inflation-adjusted average of 1,209.2%. Inflation-adjusted worker pay in that period increased only 15.3%.
But while workers have struggled to keep up, the report shows investors under these highly paid CEOs have fared very well. From 1978 to 2022, the S&P 500 generated an inflation-adjusted return of 931.8%. The stock market hasn’t quite kept pace with CEO compensation growth, but investors have certainly done better under these CEOs than their employees have.
5 Highest-Paid CEOs
The highest-paid CEOs in the U.S. face particularly harsh scrutiny. These five CEOs were the highest-paid executives in the U.S. in 2023, according to C-Suite Comp, under the new Security and Exchange Commission classification of “compensation actually paid,” which includes changes in the value of current and potential stock holdings.
Elon Musk, Tesla Inc. (ticker: TSLA)
2023 compensation: $1.4 billion
Not only was the controversial and charismatic Musk the highest-paid CEO by a wide margin in 2023, Tesla shareholders approved a brand-new $56 billion pay package for Musk in June 2024, though it may face some legal hurdles before ultimately coming to fruition. Several large institutional investors opposed the massive pay package, but Musk’s dedicated following of retail investors stepped up and demonstrated their support for their billionaire CEO. It’s understandable why long-term Tesla investors are so supportive. Musk has been Tesla’s CEO since the company went public at a price of $17 per share in June 2010. In the 14 years that followed, Tesla’s stock price increased by 13,484% compared to a 421% total return for the S&P 500 in that stretch.
Alexander Karp, Palantir Technologies Inc. (PLTR)
2023 compensation: $1.1 billion
Karp is the co-founder and CEO of data analytics company Palantir, which went public in 2020 via a direct listing. Palantir performs contract work for the FBI, the Department of Defense, the Danish National Police and other government agencies. Since the company went public, Karp has consistently been among the highest-paid executives in the world. Palantir’s stock price has risen 180% since the company went public versus the S&P 500’s 61.4% total return in that period.
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Hock Tan, Broadcom Inc. (AVGO)
2023 compensation: $767.7 million
Hock Tan has been the CEO of semiconductor company Broadcom since he helped orchestrate its creation in 2016. After previously serving as the CEO of Integrated Circuit Systems, Tan was hired as the chief executive of Avago in 2005. In 2015, under Tan, Avago acquired Broadcom Corp. to form Broadcom Inc. In November 2017, Tan moved Broadcom’s headquarters from Singapore to the U.S.; since Avago went public back in 2009, the stock has generated a total return of 9,242% compared to a 444% return from the S&P 500.
Brian Armstrong, Coinbase Global Inc. (COIN)
2023 compensation: $680.9 million
Armstrong is the co-founder and CEO of popular cryptocurrency exchange Coinbase. When Coinbase went public via a direct listing in April 2021, the stock opened at $381. Armstrong timed the Coinbase IPO well, taking the company public during a cyclical peak in Bitcoin (BTC) prices. Unfortunately, Coinbase hasn’t fared well as an investment for those that bought the day it went public. Coinbase has never closed higher than $357, and it now trades around $245. Under Armstrong, Coinbase shares are down about 36% from its initial opening price. Since Coinbase went public, the S&P 500 has generated a 32.6% total return.
Safra Catz, Oracle Corp. (ORCL)
2023 compensation: $304.1 million
Catz was the highest-paid female CEO in the U.S. in 2023. Catz has been an executive at Oracle since 1999. When Oracle founder Larry Ellison stepped down as CEO in 2014, Catz became co-CEO of the company along with Mark Hurd. Catz took over as sole CEO when Hurd resigned in September 2019. Since Catz became co-CEO in 2014, Oracle shares have generated a 290% total return, outpacing the S&P 500’s 170% total return. Since she became sole CEO in 2019, Oracle has generated a total return of 165% compared to the S&P 500’s return of just 71.2%.
Most Overpaid CEOs
In addition to the highest-paid CEOs mentioned above, shareholder advocacy group As You Sow compiles an annual list of the most overpaid CEOs in the world. As You Sow ranks overpaid CEOs based on factors such as CEO-to-worker pay ratio and percentage of institutional and retail investors that voted against CEO pay packages. Here are the five most overpaid CEOs of 2023, according to As You Sow:
| CEO | Company | Estimated Annual Overpayment | Institutional Shares Voted Against Pay | CEO-to-Worker Pay Ratio |
| Michael Rapino | Live Nation Entertainment Inc.(LYV) | $123.7 million | 81% | 5,414:1 |
| Safra Catz | Oracle | $122.5 million | 66% | 1,842:1 |
| Sundar Pichai | Alphabet Inc. (GOOG, GOOGL) | $210.6 million | 67% | 808:1 |
| Peter Zaffino | American International Group Inc. (AIG) | $60.5 million | 60% | 894:1 |
| David Goeckeler | Western Digital Corp. (WDC) | $18.1 million | 78% | 3,332:1 |
Highly Paid CEO Flops
Overpaying a CEO is one thing, but there are also plenty of examples of highly paid CEOs ending up as utter disasters for investors.
As CEO of Enron, Kenneth Lay was one of the highest-paid CEOs in the world, earning an estimated $220 million in compensation from 1999 through 2001. The collapse of the corporate fraud in 2001 wiped out more than $60 billion in market value for Enron investors, and Lay was ultimately convicted of fraud, conspiracy and other charges.
Former JCPenney CEO Ron Johnson wasn’t paid a particularly high salary during his brief tenure as CEO, but his time at the job could not have been worse. Johnson was hired as CEO in June 2011 and immediately began implementing a turnaround strategy focused on eliminating markdowns and coupons, opening up to 100 boutiques with branded merchandise inside JCPenney stores and reducing the company’s focus on private label brands. In 2011, Johnson earned $375,000 in base salary and $52.6 million in stock. Johnson was fired in 2013 after the company’s same-store sales dropped 25%, and the company reported a $1 billion loss in his first year as CEO.
Barry McCarthy took over as CEO of Peloton Interactive Inc. (PTON) in February 2022. McCarthy resigned from the position in May 2024 after the company cut 15% of its workforce. Peloton had a peak market valuation of over $50 billion, but its market cap had shrunk to just $1.1 billion by the time McCarthy left. Peloton’s stock dropped 91.6% during his tenure as CEO. Meanwhile, McCarthy took home $168 million in compensation in 2022, more than the CEOs of Apple Inc. (AAPL) or Microsoft Corp. (MSFT).
Takeaway
An excellent CEO of a public company can make a big difference in long-term investment returns, potentially making a big pay package worth the price. However, the gap between how much CEOs are paid and how much the average worker at their companies is paid has continued to widen, expanding the wealth gap. In addition, some of the highest-paid CEOs in recent decades have performed so badly that they drove their companies and their stock prices into the ground.
When it comes to effective leadership, sometimes investors get what they pay for. But just because a company shells out big bucks for a new CEO certainly doesn’t guarantee its investors will benefit.
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Highest-Paid CEOs: Do Stock Returns Justify Ballooning Pay? originally appeared on usnews.com
