Why CEO salaries may begin to decrease in the future
Do CEOs really work 300 times as hard as their employees? And if not, why do they get paid so much?
That question’s been drawing a lot of attention in the past few years, and maybe it’s finally having an effect. While CEOs’ gargantuan salaries certainly aren’t decreasing, new figures from recruitment firm Korn Ferry Hay Group show that they are growing at a slower rate. In 2015, median compensation grew by only 2.7 percent, the lowest amount in five years.
Korn Ferry suggests the shift is mainly from an increased focus on the financial performance of companies and more caution from investors. The study revealed:
- The first decrease in returns for shareholders (-0.3 percent) in five years
- A decrease in total revenue (-0.4 percent)
- Net income growth among the studied companies was only 1.8 percent, compared to last year’s growth of 7.1 percent
It makes sense that if shareholders and the business itself are getting less, CEOs should too. Where else would the buck stop?
Korn Ferry says more companies are starting to hold CEOs accountable for performance. Irv Becker, leader of Korn Ferry’s Group’s Executive Pay and Governance practice, said, “With this being the lowest total shareholder return since the beginning of the ‘say on pay’ era and active shareholders pushing for more performance-linked pay … we continue to see a shift to performance-based and long-term compensation packages for U.S. CEOs.”
People getting paid in proportion to the work they put in? Crazy, right?