BOSTON (Reuters) - America’s wealth gap debate is even reaching the corner office: The pay of chief executive officers is rising faster than pay for other executives, at a pace that is worrying ratings agencies, consultants and even America’s largest labor group.
Data compiled by executive compensation consultant Farient Advisors shows that in 2014 pay for CEOs of S&P 500 companies was about 3.12 times that of the other executives in their companies whose compensation must be disclosed in proxy statements. That’s up from 2.88 times in 2009, as CEOs got large stock awards and other performance-based pay.
A ratio of more than 3:1 between the pay of a CEO and other top executives can indicate a company has become too dependent on its top leader, said Chris Plath, vice president at Moody’s Investors Service. It can also make it harder to plan for succession because other executives may feel they are not in line for promotion, he said.
“A person could be there so long that the other executives might not feel they have a shot at being CEO,” Plath said.
The gap in C-suite pay has widened because corporate boards have been giving CEOs a larger percentage of their pay in the form of stock awards since the financial crisis to align their performance with shareholder interests, and those awards have surged to keep up with peers, said Eric Hoffmann, vice president of Farient.
Boards, he said, “are telling themselves they want to pay competitively with their peer group.”
The stock payouts can lead to big disparities. At Houston infrastructure contractor Quanta Services Inc CEO James O’Neil received $10.4 million in 2014, up 82 percent from 2013, according to the company’s latest proxy statement.
That was more than six times as much as the median - at $1.58 million - of what Quanta’s other top officers got last year. Quanta’s second-highest paid executive, Chief Operating Officer Earl “Duke” Austin, received $4.8 million in 2014, up 27 percent from 2013.
O’Neil received stock awards worth $8.5 million in 2014, while Austin received stock awards worth $3.4 million last year. In its proxy the company said the value of the awards “can be viewed as overstated” since they included both awards for past performance and awards tied to future performance goals. A spokeswoman declined to comment.
Other companies with wide executive pay disparities identified by Farient include media giants Walt Disney Co and CBS Corp,, both of which have faced concerns their CEOs are paid too much. The $57 million received by CBS CEO Leslie Moonves last year was more than five times the median of what the company’s other top executives received. A CBS spokesman declined to comment.
The pay differences among corporate leaders add to a broader debate about America’s wealth gap. U.S. regulators are moving to require companies to disclose the ratio between the pay of their CEOs and other workers.
CEOs of S&P 500 companies on average made 373 times as much as the typical U.S. worker in 2014, according to the AFL-CIO. But the labor group is not just worried about workers low on the organization chart.
“High pay disparities hurt morale no matter where you work,” said Brandon Rees, deputy director of the AFL-CIO’s office of investment. “It doesn’t matter if you work in the executive suite or on the shop floor, it undermines team cohesion,” Rees said.
The pay data reviewed by Farient was based on filings through May 31 for companies in the S&P 500.
Reporting by Ross Kerber; Editing by Richard Valdmanis and Leslie Adler