Posted: May 12, 2022
2020 was one of the most challenging years in history to be the CEO of a major company. Some industries, like airlines, cruises, and restaurants were forced to cease operations for months on end. Top executives had to make quick decisions about how to keep the company running while adjusting to the changing conditions presented by COVID-19. 2021 was not much better. The lingering impact of COVID-19 created a global supply chain that was in a constant state of disarray. Employees were allowed back in the office, but the new challenge was getting products on shelves and keeping the economy from continuing to stagnate. Luckily, by this point, the worst of the virus is behind us. Now, in the wake of the pandemic, CEOs and top executives are being commended for their leadership over the past two years in the form of higher pay. Let’s take a look at how stock awards and cash bonuses are driving the increase in executive pay. The State Of Executive Compensation U.S. executive pay soared 31% in 2021, according to the Economic Times. As mentioned previously, this increase was generally attributed to CEOs successfully navigating the most severe phases of the coronavirus pandemic. Good stock performance and record profits offered two other reasons to reward CEOs and other executives. Last year, many of the world’s largest companies brought in billions in total profit. For example, Apple reported a total 2021 annual profit of $94.6 billion. Microsoft reported a total profit of $61.27 billion. Even non-tech giants, such as The Home Depot, had a good year and the company reported $16.43 billion in profit. Most large corporations are literally making more money than they know what to do with. When this happens, it usually means incoming bonuses for top executives. Median CEO compensation in the United States currently sits at about $20 million in 2021. This puts the ratio of executive pay to worker pay at about 254:1, up from 238:1 in 2020. The data consistently shows that compensation increases are concentrated at the upper-management level. It’s How You Are Paid, Not How Much Another thing to note is that CEO salaries are actually not that impressive. For example, Tim Cook of Apple only earns $3 million per year in the form of his actual salary. This is because it’s much more beneficial to be compensated in bonuses and stock awards than a salary. As the saying goes, “it’s about how you are paid, not how much.” By classifying income as a bonus or stock awards, top executives can dodge paying traditional income tax - a perk that President Joe Biden is attempting to undo with the Billionaire Tax that he proposed in early 2022. On top of that, stock ownership in a company is particularly beneficial since it’s scaleable and its value over time generally increases. A CEO can make significantly more money from a stock price increase than they ever could from a salary. Top executives are also responsible for determining whether to pay a dividend as well as how much to pay. Dividends are a per-share payment that is sent directly to every shareholder in a company. This is just another way that top executives can redirect more of the company’s profit into their own total compensation. To learn more about maximizing executive compensation, visit our Contact Page, or contact us directly by email at email@example.com or by phone at 415-618-6060.