The cost of big paydays for corporate CEOs continues to rise, but so do those staggering salaries.
A new study of CEO compensation finds that changes in the federal tax code aimed at restricting executive compensation have done nothing to reduce the payments companies make to their executives.
“Taxes just aren’t big enough to change the structure or levels of executive compensation,” said Bridget Stomberg, an accounting professor at Indiana University. Stomberg and two colleagues investigated what happened to CEO compensation after a 2017 change in federal law restricted companies’ ability to deduct executive compensation from their taxable income.
“Even three full years after the law went into effect, we have seen no sign of a cut in CEO salaries,” Stomberg said in a press release accompanying the study’s release last month.
The authors found that two cities — Portland and San Francisco — have their own taxes associated with large differences between CEO and worker pay, and eight states are considering similar taxes.
Portland’s measure, approved in 2016, imposes a small tax on companies that operate in the city and pay their CEOs more than 100 times what they pay the average worker.
Former Portland Commissioner Steve Novick, who campaigned for the tax, said at the time he didn’t expect it to actually limit CEO salaries. Instead, he described it as “a tax on inequality itself.”
Portland earned $5.2 million in tax revenue in 2019, up from $3.15 million in 2017. The city received an additional $4.7 million from the 2020 tax and this year’s surveys will be continued. (Figures for 2021 are not yet available.)
Outsized pay packages remained plentiful in The Oregonian/OregonLive’s annual executive compensation survey of public companies operating in the region. Intel CEO Pat Gelsinger topped the list with a $179 million pay package. (See the full list at the end of this article.)
Intel reported that Gelsinger’s salary was more than 1,700 times the $104,000 the company paid its average worker. That’s by far the largest discrepancy in the most recent The Oregonian/OregonLive poll.
Intel acknowledged that the extraordinary compensation has raised tough questions from its investors – who denounced Gelsinger’s incentives in a non-binding vote last spring.
The federal government requires most public companies to benchmark their CEO pay against workers’ wages each year. In Gelsinger’s case, however, Intel argues that his salary isn’t as high as it appears.
Intel reported an unusual “alternative pay ratio” this year — with no one-off payouts related to Gelsinger’s hiring. But that earned him just $29 million — just 276 times the average wage for an Intel worker.
In any case, the actual value of Gelsinger’s payday is likely to be significantly less than the $179 million reported by Intel.
Almost all of his compensation comes in the form of stock grants — and many of the grants go to waste unless Intel’s stock price soars. Unfortunately for Intel and Gelsinger, the opposite has happened.
Intel shares are at their lowest in years, trading around $35. If Gelsinger doesn’t turn around, much of its stock-based compensation will be worthless.
Dutch Bros CEO Joth Ricci recorded the second-highest payout among regional companies last year with compensation of $62.4 million. This consisted primarily of one-time stock awards related to the company’s IPO.
Some newly listed companies are not required to report median wages, and Dutch Bros were not required to. So it’s not possible to compare Ricci’s payout with what the workers earn. In fact, almost a third of the companies in this year’s survey did not report workers’ wages.
Such comparisons are possible for Kroger – the parent company of Fred Meyer – and for Nike, the largest company headquartered in Oregon.
Kroger CEO Rodney McMullen reported $22.4 million in salaries last year, more than 900 times the average wage of $25,000. McMullen told CNBC last year that his company had 20,000 job openings and lamented that “one of the biggest limitations we have right now is finding talented people.”
Nike said it paid CEO John Donahoe $28.8 million, 770 times the average worker’s salary of $37,400.
Two Oregon CEOs stood out last year not because their pay seemed particularly high, but because it seemed unusually low.
Eugene electric vehicle maker Arcimoto estimated CEO Mark Frohnmayer’s compensation at $295,000 (Arcimoto removed Frohnmayer as CEO this week), while Beaverton technology company Digimarc said CEO Riley McCormack earned $250,000. That’s less than twice the average salary for a Digimarc employee.
While these CEOs received healthy salaries, they are well below what other CEOs receive.
But again, their salaries aren’t the whole story. Both Frohnmayer and McCormack are the largest shareholders in their companies, each owning around 20% of the shares. So their payouts are many times their salaries – assuming their companies deliver financially.
– Mike Rogoway | email@example.com | Twitter: @rogow | 503-294-7699