Executive Pay

In the 1970s, executive salaries were about 30 times bigger than worker salaries.

By 2000, the ratio zoomed to 648 to one.

There are three reasons for the increase, said Charlie Tharp, an ILR lecturer who participated in an executive compensation webinar Monday hosted by Kevin Hallock, an ILR labor economics and human resource studies professor.

One is that, 40 years later, a larger proportion of executive pay is based on equity-based compensation versus salary, Tharp said. Many executives are rewarded for performance with stocks and stock options.

Add to that the enormous growth of companies and of the stock market over this time period, said Tharp, who is also executive vice president for policy at the Center for Executive Compensation.

"It's logical executive pay would grow," he said.

Median pay for executives was down 6.8 percent in 2008 from 2007 and bonuses were down 20.6 percent, according to Equilar, a California-based data provider. In 2008, the median executive compensation package was $1.856 million. In 2007, it was $1.473 million.

On average, the proportion of salary to other forms of compensation such as stocks goes down as company size goes up, said Hallock, also director of research for the Center for Advanced Human Resource Studies.

For the largest 10 percent of companies in the United States, greater than half of compensation for CEOs comes in the form of stock or stock options, Hallock said. Salary comprises an average of under 15 percent of total pay for CEOs of very large companies and about 40 percent of total pay for smaller companies, he said.

Hallock said many organizations are facing "say-on-pay" shareholder votes this spring.

The shareholder proxy say on executive pay began in the United Kingdom in 2002, Tharp said.

Of 75 shareholder proxy votes on executive compensation in 2008 in the United Kingdom, only 12 received a majority vote, Tharp said.

American shareholders are not clamoring for the proxy vote on pay, Hallock said.

He contacted 20 of the largest 25 institutional investors in the United States in spring 2008. At the time, about half were against say-on-pay, one quarter were for it and one quarter were indifferent. It is not clear whether their views have changed during the current financial crisis, Hallock said.

View Professor Hallocks April 20 webcast on Executive Pay. If you have trouble viewing the webcast, please see the system requirements page.