CEO pay and the great divide

Public company execs can expect increasing personal performance scrutiny

CEO pay and the great divide


By Jen Frost

New Year, new you? If that means donning a new pair of running shoes, signing up with a personal trainer, or joining a flashy fitness centre, you may have encountered this advice along the way: if you want quality results, you’re going to have to pay for it.

The corporate world is no stranger to the ‘get what you pay for’ mantra, at least where it comes to executive pay, though – like with your new fitness regime if you fail to stick with it – there’s no guarantee of success.

Shed a tear for Boeing CEO Dave Calhoun as the aerospace company grapples with the latest in a string of disasters.

The chief exec missed out on a $7 million bonus in 2022, as the aerospace company wrestled with delivery pushbacks and continued reputational fallout, leaving his total pay packet topped out at a not-so-paltry $22 million for the year.

It remains to be seen how the latest predicament, which did not result in fatalities, will impact Calhoun, who stepped into the Boeing top job in January 2020.

Calhoun’s ascension followed the ousting of Boeing CEO predecessor Dennis Muilenberg, who left the company with a $62 million compensation packet, though no severance pay, in the wake of the 2018 and 2019 Lion Air and Ethiopian Airlines 737 MAX crashes that led to the deaths of 346 people.

Sacked Muilenberg’s eight-figure payout may seem like a very sweet goodbye considering he got the boot from Boeing as it wrestled with numerous allegations, likely to be rehashed in light of the Alaska Airlines incident, that it had prioritised profit over safety; in 2022, Boeing agreed to cough up $200 million to settle SEC charges over “materially misleading” public statements.

CEO pay – highest paid execs pulling away from workers

Muilenberg’s farewell haul, though, pales in comparison to what some CEOs are making on an annual basis.

Blackstone CEO Steve Schwarzman pulled in $253 million in 2022; Google parent Alphabet CEO Sundar Pichai made $226 million; and Hertz’s Stephen Scherr made $182 million according to a Wall Street Journal analysis.

Insurance’s top paid CEO, AIG’s Peter Zaffino, was compensated a hardly negligible $75.3 million in 2022, the latest available year for data.

For most of us, comparing what we earn to what top execs are able to make is a mind-boggling and potentially fruitless exercise.

Recent research in Canada, for example, found that the top 100 highest paid CEOs typically earned a record-setting 246 times more than the average Canadian in 2022. It would take the average top 100 CEO just eight hours to earn CA$60,600, or the average Canadian wage, according to the Canadian Centre for Policy Alternatives (CCPA).

Unlike most employees, execs typically reap the biggest rewards through bonuses, rather than salaries, and are therefore less beholden to the whims of inflation.

While CEOs have continued to be richly rewarded, wages have been stagnating for many – WTW has reported relatively stable salary increase rises since 2010, though this may now be trending upwards.

Meanwhile, lower paid workers have found themselves struggling to keep pace with cost-of-living pressures – and understandably, many aren’t happy about it.

In the UK, Bank of England governor Andrew Bailey, whose annual salary is £495,000, drew ire when, last June, he called for people to stop requesting wage hikes in a bid to curb inflation also being felt on an international scale.

CEO pay and the worker divide

Widening the executive and worker divide, 2023 was also a year of mass layoffs as companies contended with global pressures compounding in a tough economic environment. Insurance staff were not immune.

Dissatisfied anonymous GEICO employees took to social media in the aftermath of the Berkshire Hathaway business’s cuts, with GEICO CEO Todd Combs’ ‘take care’ layoff and back to office letter to staff even spawning mini memes.

Combs himself banked total compensation of $13.6 million in 2022, a year in which GEICO fell to a $1.88 billion underwriting loss, a point that appeared not to fly over some purported GEICO employees’ heads.

With executives across sectors pulling in millions while companies underperform or take pre-emptive cost-cutting action to steer ships and keep staffing budgets in check, it’s perhaps unsurprising that some workers have increasingly adopted an ‘us versus them’ mentality.

Is it getting harder to be a CEO?

You can say this for high-earning CEOs that have ridden the past few years out: if anything, the job (which has included navigating the pandemic) may very well have gotten harder.

Whether facing natural catastrophe property hits, post-pandemic impacts, or soaring automotive repair costs, some property and casualty (P&C) insurance execs have at times been running on a treadmill turned up to 11 amid investor, regulatory, governmental, and customer pressure.

Outside of the usual executive merry-go-round of individuals leaving to “pursue other opportunities”, the former CEO of the UK’s Direct Line Group (DLG), Penny James, resigned last January amid biting motor insurance claims costs and a scrapped dividend. James was reportedly entitled to an £817,000 salary plus pension contributions and benefits covering her year-long notice period – rather less than Boeing’s scandal-hit Muilenberg, but not a sum most people wouldn’t bat an eyelid at either.

Across American industry, CEOs resigned in record numbers in 2023 with some battling burnout and others looking to succession plans with businesses in more “stable waters” post-pandemic, research from Challenger, Gray & Christmas found.

CEOs in the spotlight on inflation, profits

Outside of P&C insurance, the financial prognosis on the back of inflation has proved rosier for some businesses than the consumers they serve. Being well in the black may be the ultimate end game, but warning shots have been fired for executives of companies that see strong results for full year 2023 and into 2024.

In some cases, CEOs and companies have been accused of pocketing inflationary dividends, with consumers and staff feeling the pinch.

Food price inflation, for example, has seen executives pushed to justify rising prices.

Take Canada, where major grocery chains last year hit back at allegations that inflation has offered “good cover” for price hikes expected to drive record profits across the sector

Executives – like George Weston (Loblaw parent) CEO Galen Weston (2022 compensation: CA$11.8 million) and Empire Company (Sobeys parent) president and CEO Michael Medline (2022 compensation: CA$6.8 million) – have found themselves in the public and federal firing line and, though Medline made less in 2022 than 2021, scrutiny can only be set to continue if bumper rewards are on the horizon.

CEO pay – an age of scrutiny

Looking forwards, in tough times for consumers and everyday workers, big business and executives can expect continued demands from outside of their shareholder base for them to justify compensation and profit quantity against quality of service. For P&C insurance (and personal lines insurance in particular) any turnaround profits and bonus bumps are likely to lead to bigger asks to prove value to policymakers, regulators, employees, and the man or woman on the street.

The intangibility of insurance might protect insurance companies and executives from the types of physical catastrophic failures that Boeing has undergone, but the wide-reaching nature and necessity of so many insurance products will keep them firmly in the reputational and policy crosshairs if the industry and its leadership are seen to profit from putting protection almost out of reach.

Meanwhile, in the age of the internet and social media, you might choose to post your new year’s workout ‘progress pics’, but public company CEOs will have little choice but to face their actions and remuneration being looked at under multiple microscopes.

When things are seen to go wrong, whether that’s from a consumer (too much profit), shareholder (not enough profit), or even employee perspective, public company execs can expect increasing personal performance scrutiny – no matter how justified they believe compensation and, in the case of insurance, rate hikes might be.

What’s your view on CEO pay and trouble at Boeing? Leave a comment below.

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