What's a CEO worth?
On Jan. 15, Mary Barra took the wheel as CEO of General Motors, becoming the first woman to head a major global automaker. It’s a bold move for GM, and we wish Barra the best of luck.
She’s certainly qualified. She began her GM career at 18 as a co-op student in 1980. (Her father was a die maker at Pontiac for 39 years.) She earned a bachelor’s degree in electrical engineering from General Motors Institute (now Kettering University), and she obtained a master’s in business administration from Stanford University through a GM fellowship. Along the way, she has served as manager of the Detroit-Hamtramck assembly plant, vice president of global manufacturing engineering, vice president of global human resources, and executive vice president of global product development, purchasing and supply chain.
Last month, a tempest in a teapot erupted after erroneous reports in the media suggested GM would pay Barra only half what her predecessor made. In truth, Barra is expected to receive total compensation of $14.4 million in 2014—60 percent more than her predecessor and nearly three times what she made in 2013. Although she’ll be earning less than the CEOs of Ford or Chrysler Fiat, Barra’s total pay will still be above the average for Fortune 500 CEOs, which was $12.3 million in 2013.
Never ones to miss an opportunity, some members of Congress seized on the erroneous report to opine about the gender pay gap. Although they turned out to be wrong about Barra, the gender gap remains an issue.
For example, according to our 2013 State of the Profession survey, female manufacturing professionals earned, on average, 25 percent less than their male counterparts. Some 45 percent of the women surveyed earned less than $80,000, while 36 percent of the men made more than $80,000. Granted, the men in our survey had slightly more experience than the women (25 years vs. 20 years). Nevertheless, we would remind manufacturers that equal pay should be given for equal work.
Oddly, no one questioned why any CEO—male or female—was even worth such a generous salary. A June 2013 study by the Economic Policy Institute found that the CEOs of the top 350 U.S. companies averaged $14.1 million in compensation in 2012, including the value of exercised stock options. That’s an increase of 13 percent since 2011 and 37 percent since 2009.
From 1978 to 2012, CEO compensation increased 875 percent, a rise more than double stock market growth and substantially greater than the painfully slow 5 percent growth in a typical worker’s compensation over the same period. Moreover, the ratio of CEO pay to worker pay averaged 273-to-1 in 2012. That’s down from the astonishing peak of 383-to-1 in 2000, but it’s far higher than it was in 1965 (20-to-1), 1978 (29-to-1) or 1995 (123-to-1).
I’m all for making money—if someone wanted to pay me $14 million, I wouldn’t turn it down—but is such exorbitant compensation really good business?