According to a report from the Economic Policy Institute, the average pay for CEOs has increased by 1,322% since 1978 compared to less than 12% for typical employees. This has resulted in a massive imbalance in pay between these high-powered execs and their average employee. In 2020, the average executive made 351 times more money than the average worker, but that disparity only seems to be growing, driven by outliers like Intel (NASDAQ: INTC) CEO Pat Gelsinger.
Recent regulatory filings with the U.S. Securities and Exchange Commission (SEC) have revealed that, in the last 11 months of 2021, Gelsinger made a whopping $178.6 million, nearly 79% of which came from stock awards. In comparison, Gelsinger's predecessor Bob Swan made $22 million in 2020.
When Gelsinger came on in February of last year, Intel was facing supply chain issues and declining share prices. By the end of the year, shares rose around 6.8% compared to the 17% decline of the year before. Intel also saw a record-high revenue of $79 billion under Gelsinger's leadership.
Intel says that Gelsinger's compensation reflects the "limited pool" of potential hires for the role. It also stated that roughly half of Gelsinger's pay was meant to compensate for payouts that he lost when he moved from his prior CEO position at VMware (NYSE: VMW) to Intel. Gelsinger spent three decades at Intel before he left in 2009, later becoming VMware's CEO in 2012.
Intel "sought to deliver compensation that was commensurate with Mr. Gelsinger's capabilities and experience and reflective of the considerable challenge of leading Intel's transformation," according to the company's SEC filing.
"Specifically, in determining the size and structure of his one-time new-hire equity awards, the Compensation Committee considered the value of the compensation that Mr. Gelsinger forfeited by leaving his former employer, his unique skill set, the fiercely competitive market for senior executive talent, the magnitude of the transformation being undertaken by the company, and finally the importance of creating and ensuring alignment with our stockholders," the filing continued.
Intel says that, without taking Gelsinger's VMware payouts into account, his salary would be valued at $28.8 million. This would put Gelsinger's pay rate relative to his employees, 276 times, much closer to the national average for CEOs. The company also said that Gelsinger's pay package "reverted to its historical approach" for 2022, set at a target of $26.3 million.
However, Gelsinger is also far from the only CEO making more than a thousand times their average employee's salary. Apple (NASDAQ: AAPL) CEO Tim Cook's pay package of 1,447 times the average Apple employee's salary was approved by shareholders despite warnings against the decision from the advisory firm Shareholder Services.
CEO pay may be on the rise, but so too is the number of CEO pay packages being rejected by shareholders. As You Sow, a nonprofit shareholder advocacy group that regularly reports on "The Most Overpaid CEOs", says that a record 16 CEO pay packages were rejected in 2021, a 60% increase over the year before. However, the group says that, rather than being based on total compensation, rejections were made due to how companies justified their pay increases.
"For example, companies that changed CEO pay-performance metrics this year using COVID-19 as the excuse received high levels of negative votes from shareholders," the group reports.
The group also included a list of the ten most overpaid CEOs, starting with Paycom Software's (NYSE: PAYC) Chad Richardson, Norwegian Cruise Line's (NYSE: NCLH) Frank Del Rio, General Electric's (NYSE: GE) H. Lawrence Culp Jr., and T-Mobile's (NASDAQ: TMUS) G. Michael Sievert.
Also on the list, at number eight, is Discovery (NASDAQ: DISCA) CEO David M. Zaslav. Zaslav made headlines recently when it was revealed in an SEC filing that his compensation increased by more than 600% to $246 million in 2021.
While improved performance is frequently cited as justification for higher pay packages, As You Sow also reports that companies with higher-paid CEOs don't actually see higher returns. In fact, each report conducted by the group since its inception has shown that the companies with the top 100 overpaid CEOs underperform compared to their lower-pay counterparts.