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American employers’ salaries are rising at the fastest pace in at least 14 years, according to new figures that critics say illustrate how growing rewards packages, like Elon Musk’s, risk exacerbating social inequality.
So far in 2024, median CEO compensation at S&P 500 companies has risen 12 percent, according to ISS Corporate, part of proxy advisor Institutional Shareholder Services. This compares with a 4.1 percent year-over-year increase in wage growth in the United States, according to Official figures.
Musk got this week a resounding victory in a shareholder vote about his $56 billion stock option package, the largest in U.S. history.
Musk’s victory (the vote ratified a pay package first implemented in 2018) sends a message to executives that “the sky is the limit here. . . you can earn as much as you want,” according to William George, former chairman of the compensation committee of Exxon’s board of directors and former CEO of Medtronic.
Executive pay “has gotten out of control,” George said. “This is going to cause further division in our country between the haves and the have-nots. This worries me a lot because I think there will be a loss of confidence. [in companies].”
Robin Ferracone, chief executive of Farient Advisors, a compensation consultancy, said rising executive pay awards were being driven largely by “companies wanting to prevent their CEOs from taking phone calls from [rivals’] search committees.
Musk’s pay package is unusual for a CEO, as it includes stock options tied to very ambitious targets, including market capitalization and revenue. Few other executives would risk their entire salaries on so-called moonshot awards, he said.
Peloton, Nikola, LendingTree and Paycom Software are among a handful of companies that have offered their CEOs mega stock grants only to watch their stock prices tank.
George said he was “disappointed” by big investors, such as BlackRock and Vanguard, who are “not stepping up” against excessive executive awards.
BlackRock and Vanguard, Tesla’s largest institutional investors and the world’s largest asset managers, voted Thursday in favor of Musk’s $56 billion pay package. For years, the duo has overwhelmingly approved of executive bonuses. In 2023, Vanguard supported 96 percent of wage votes across all companies, according to Diligent. BlackRock supported 91 percent of these salary votes.
Both BlackRock and Vanguard typically support at least 90 percent of U.S. companies’ pay packages each year, Diligent data shows. Only 1 percent of S&P 500 salary votes have failed so far this year, according to law firm Sullivan & Cromwell.
Representatives from BlackRock and Vanguard responded to requests for comment referring to their pay voting policies, which aim to align pay with performance.
“There is a contagion effect with respect to executive compensation. One big pay package seems to beget another,” said Jill Fisch, a professor at the University of Pennsylvania Law School. But after Musk’s vote, “I don’t think there’s a big contagion effect here,” she said.
“The shareholder vote will inevitably send a mixed message,” in part because it looks back on salaries awarded in 2018 and because Musk is a CEO who “is one of a kind.”
“It would be really difficult to look at the outcome of the vote and say I know what that will mean for any other executive.”