CEO pay is fair, say 70% of big US firms

But most Americans say corporate bosses overpaid, according to Stanford studies

NEW YORK • More than 70 per cent of directors of the biggest American companies say top executives' pay is in line with performance. That is a blunt contrast to the view of almost three-quarters of Americans, who consider corporate bosses overpaid, Stanford University research shows.

The disconnect, highlighted in two Stanford studies, comes as both Republican and Democratic presidential candidates criticise compensation as too high.

Along with the majority of directors happy with chief executive officer pay, 84 per cent of CEOs said they feel their pay is in line, according to one of the reports, which was done with executive recruiter Heidrick & Struggles.

"The gap between Wall Street and Main Street is pretty wide," said Professor David Larcker, a Stanford business school professor who worked on both studies.

"There's a populist appeal to making changes, whether that's good or bad."

The average CEO at Standard & Poor's (S&P) 500 companies made 373 times the average worker pay in 2014, according to research by the AFL-CIO union.

DIFFERENT VIEWS

We have directors who see the CEO as very important to the value of the company. Regular people think the executives should get paid less.

PROFESSOR DAVID LARCKER, a Stanford business school professor

Company-provided data on pay ratios will not be available until next year under new a rule approved in August last year by the United States Securities and Exchange Commission that was part of the Dodd-Frank Act of 2010.

The average pay for an S&P 500 CEO was US$12.2 million (S$17 million) in 2014, according to researcher Equilar, while production and non-supervisory employees in the US earned an average US$36,134, according to the AFL-CIO.

Republican front runner Donald Trump told the CBS programme Face the Nation in September last year that CEO pay was a "total and complete joke". Democratic candidate Hillary Clinton has also been critical of executive pay practices.

In a separate Stanford survey of public opinion on CEO compensation, only 16 per cent of Americans said CEOs deserve what they receive, and 62 per cent said CEO pay should be capped in some way.

The respondents suggested that top executives should get roughly 18 times a worker's pay, on average, according to the study. Almost half said the government should intervene.

The surveyed directors said that about 65 per cent of a company's overall performance is linked to its CEO and management team.

Stanford's Larcker said the risk for companies in reducing pay or adding an upper limit to CEO compensation is that "it might discourage the best candidates from running big companies". "We have directors who see the CEO as very important to the value of the company," Dr Larcker said. "Regular people think the executives should get paid less."

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on March 04, 2016, with the headline 'CEO pay is fair, say 70% of big US firms'. Print Edition | Subscribe