How Much is Too Much? Executive Pay by the Numbers
In 1992 S&P companies issues options worth $11 billion, and the number reached its peak of $119 billion in 2000. The number has since fallen to $71 billion in 2002.
A survey by Ira Kay, head of the compensation practice at Watson Wyatt, found:
- 90% of institutional investors thought executives were “dramatically overpaid”.
- 60% of company directors, the very people who decide how much managers should earn, also thought executives were overpaid.
Lucian Bebchuk and Yaniv Grinstein, of Harvard and Cornell Universities, identified:
- Between 1993 and 2003 the total pay of the top five executives in the Standard & Poor's 1,500, which accounts for roughly 80% of listed American companies by value, amounted to some $350 billion
- The share of earnings consumed by these executives' pay rose from 5.2% in the first five years of that period to 8.1% in the second five.
- The value of pensions would boost this total pay by as much as a third.
MIT and Federal Reserve data shows:
- The median pay of executives in the US was 120 times of the average wages during the peak in 2000.
- In 2000-03 their mean annual pay was $8.5 million and the median $4.1 million
Public company executives earned about $3 for each extra $1,000 of profits, while managers in the buy-out private equity firms earned $64 for each extra $1,000, according to Steven Kaplan of the University of Chicago.
A manager in a really successful private equity deal might earn $50-$70 million, private equity's way of attracting first-rate executives.
The 6-fold increase in the size of American firms between 1980 and 2003 may account for much of the 6-fold increase in managers' pay during that period, according to economists Xavier Gabaix and Augustin.
Corporate Library and pay consultant Mr. Johnson's analysis found that:
- The typical CEO of an S&P 500 company earned just under $7 million in 2005.
- Senior investment bankers stood to earn bonuses of $20-$25 million in 2006 and top traders $40 - $50 million.
At the peak of the late 90's bull market, the boards of some new-economy companies were giving away more than 7% of the equity a year in options. Top executives received under 10% of these options, according to Brian Hall of the Harvard University and Kevin Murphy of University of Southern California.
Between 1992 and 1997, chief executives could expect to last about 8 years in the job., and it has fallen to 6 years between 1998 and 2005, according to Steven Kaplan and Bernadette Minton of Ohio State University.
Some 57% of American CEOs are also chairman of their company, according to the Conference Board.
Read the special report on executive pay in the January 20th issue of The Economist magazine.