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CEO pay rose 17pc in 2021 as profits soared; workers trailed

NEW YORK (AP) – Even when regular workers win their biggest raises in decades, they look minuscule compared with what CEOs are getting.

The typical compensation package for chief executives who run S&P 500 companies soared 17.1 per cent last year, to a median USD14.5 million, according to data analysed for The Associated Press by Equilar.

The gain towers over the 4.4 per cent increase in wages and benefits netted by private-sector workers through 2021, which was the fastest on record going back to 2001. The raises for many rank-and-file workers also failed to keep up with inflation, which reached seven per cent at the end of last year.

CEO pay took off as stock prices and profits rebounded sharply as the economy roared out of its brief 2020 recession. Because much of a CEO’s compensation is tied to such performance, their pay packages ballooned after years of mostly moderating growth.

In many of the most eye-popping packages, such as Expedia Group’s, valued at USD296.2 million and JPMorgan Chase’s USD84.4 million, boards gave particularly big grants of stock or stock options to recently appointed CEOs navigating their companies through the pandemic or to established leaders they wanted to convince to hang around.

The CEOs often can’t cash in on such stock or options for years, or possibly ever, unless the company meets performance targets. But companies still must disclose estimates for how much they’re worth. Only about a quarter of the typical pay package for all S&P 500 CEOs last year came as actual cash they could pocket.

Whatever its composition, the chasm in pay between CEOs and the rank-and-file workers they oversee keeps widening.

This combination photo shows the highest paid male and female CEOs in the S&P 500 index for 2021, as calculated by The Associated Press and Equilar, an executive data firm. Top row, from left, Bill McDermott of ServiceNow, Mary Barra of General Motors, Tim Cook of Apple, Adena Friedman of Nasdaq, and David Zaslav of Warner Bros Discovery. Bottom row, from left, Kathy Warden of Northrop Grumman, Jamie Dimon of JPMorgan Chase, Lisa Su of Advanced Micro Devices, Phebe Novakovic of General Dynamics, and Peter Kern of Expedia Group. PHOTO: AP

At half the companies in this year’s pay survey, it would take the worker at the middle of the company’s pay scale at least 186 years to make what their CEO did last year. That’s up from 166 a year earlier.

At Walmart, for example, the company said its median associate made USD25,335 in compensation last year. That means half its workers made more, and half made less.

That’s up 21 per cent from USD20,942 a year earlier and came as the company’s average hourly wage for United States (US) associates rose from USD14.50 in January 2021 to more than USD17 currently. That increase was bigger than the raise CEO Doug McMillon got, on a percentage basis. But his 13.7-per-cent raise netted him a total package valued at USD25.7 million.

Anger is growing over such an imbalance. Surveys suggest Americans across political parties see CEO pay as too high, and some investors are pushing back.

Workers are trying to organise unions across the country, and the “Great Resignation” has emboldened millions to quit to find better jobs elsewhere. The US government counted more than four million quits during April 2021 alone, the first time that happened.

The monthly number has since topped 4.5 million twice.

“That is going to add a huge cost to corporate bottom lines, to have these kind of turnover rates,” said Director of the global economy project at the progressive Institute for Policy Studies Sarah Anderson.

“They should be thinking about what kind of message they’re sending to those people, about whether they’re really valued in their jobs,” Anderson said.

“When the guy in the corner office is making several hundred if not thousands of times more, that’s sending a really demoralising message.”

Gains for CEO pay had been slowing in recent years, with the median rise easing from 8.5 per cent in 2017 to 4.1 per cent in 2019. It ticked back up to five per cent in 2020, which was a complicated year because the pandemic shut down the economy and profits at many companies tanked.

For 2020, many companies rejiggered the intricate formulas they created to determine their CEOs’ pay. The tweaks made up for losses caused by the pandemic, something many boards said was an extraordinary event outside the CEO’s control. Then came 2021. Thanks to a reopened economy, super-low interest rates from the Federal Reserve and other factors, stock prices soared and the S&P 500 jumped nearly 27 per cent, setting records through the year. Earnings per share soared roughly 50 per cent.

Throughout the year, CEOs had to navigate snarled supply chains and shortages of chips and other key materials that impacted businesses across industries, said a partner at Compensation Advisory Partners Dan Laddin, a consulting firm that works with boards.

“All this led to a desire to really reward” executives, said Kelly Malafis, also a partner at Compensation Advisory Partners, “because the financial performance was there, and the view was that management teams were exceptional in navigating the situation and delivering results”.

Last year’s 17.1-per-cent leap for median pay of S&P 500 CEOs was the biggest since a 23.9-per-cent surge for 2010 compensation packages, according to the data analysed by Equilar. Consider CEO of General Motors (GM) Mary Barra. Her industry was particularly hard hit by the shortage of computer chips, which snarled auto production.

Even so, GM’s board highlighted how the company still delivered record earnings before interest, taxes and some other items.

The automaker also accelerated development of its electric vehicles. Those are two of the factors that influence Barra’s pay, and her compensation climbed 25.4 per cent to USD29.1 million.

“I would hope that the corporation making record profits would recognise that the workers doing the work are the ones generating the revenue,” said a hot metal driver at a GM facility in Bedford, Indiana Dave Green. “We’re just trying to get by.”

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