Shareholders Voting Down Executive Pay Packages: Trend or Just a Phase?

Posted: June 2, 2022

Very few people will disagree that CEOs and other top executives should make more money than the average worker. However, the bigger issue currently being debated relates to just how much more executives are paid. According to the Economic Policy Institute, the ratio of CEO pay to worker pay was 21-to-1 in 1965. In 2020, it was 351-to-1. Corporations are making more money than ever but there is consistent evidence that this excess cash is not being distributed evenly. Raises and bonuses are concentrated among the company’s top executives. After several decades of increasing executive compensation, shareholders are finally putting their foot down. Let’s take a look at whether shareholders voting down executive pay packages is a trend or just a phase. Who approves executive pay packages? When you work at a company, your salary is generally determined by your manager. Your managers’ salary is then determined by their manager, and so on up the corporate ladder. But what happens when you reach the top of the ladder? Who sets the salary for CEOs? Do they just get to pick how much they want to earn? The answer: not if it’s a public company. For almost all public companies, the board of directors (usually working with a compensation committee) recommends a pay package for the CEO. CEO pay packages are generally a little more complex than regular employees' salaries. They include things like salary, bonus, stock options, deferred compensations, and other perks. They also need to adhere to SEC standards. For this reason, it requires a team of people to determine what’s fair. This pay package then gets presented for shareholders to approve. Shareholders vote on whether or not to approve the pay package. Most of the time, pay packages are approved by an overwhelming majority. Not recently though. Examples of rejected packages Glass Lewis, an influential advisor, recently recommended that shareholders of Barclay’s and Standard Chartered should reject the new CEO’s pay package. The general thinking was that these packages included a higher salary that was unearned. They also gave out hefty pension packages to top executives. In 2021, more than twice as many companies in the FTSE 100 faced backlash over proposed executive compensation packages. Even if not all of these packages got rejected, the number of shareholders voting no is increasing. Trend or Phase? It is difficult to say if this is a long-term trend until more data is available. However, the number of rejected pay packages certainly seems to be trending up. This is especially true after the COVID-19 pandemic. During the pandemic, many workers struggled or were let go entirely while CEO pay stayed the same. This unevenness has caused executive pay packages to become more of a nation talking point. To learn more about maximizing executive compensation, visit our Contact Page, or contact us directly by email at fglassner@veritasecc.com or by phone at 415-618-6060.