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AMERICANS AND CEO PAY:
2016 PUBLIC PERCEPTION SURVEY
ON CEO COMPENSATION
WWW.GSB.STANFORD.EDU/CGRI
TA B L E O F C O N T E N T S
Executive Summary and Key Findings...........................3
Review of Findings..............................................................6
Demographic Information..............................................11
Methodology....................................................................15
About the Authors...........................................................15
About Stanford Graduate School of Business and
the Rock Center for Corporate Governance...............17
Contact Information.......................................................17
AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 3
Seventy-fourpercentofAmericansbelieveCEOsarenotpaidthe
correct amount relative to the average worker. Only 16 percent
believe they are. While responses vary across demographic
groups (e.g., political affiliation and household income), overall
sentiment regarding CEO pay remains highly negative.
“ThereisaclearsenseamongtheAmericanpublicthatCEOsare
taking home much more in compensation than they deserve,”
says Professor David F. Larcker of Stanford Graduate School of
Business. “While we find that members of the public are not
particularly knowledgeable about how much CEOs actually
make in annual pay, there is a general sense of outrage fueled
in part by the political environment.”
“Corporations and their boards need to do a better job
explaining and justifying CEO pay arrangements,” adds Nick
Donatiello, lecturer in corporate governance at Stanford
Graduate School of Business. “It is remarkable when 74 percent
of Americans agree about anything in today’s environment—
particularly something as politically charged as CEO pay. This
is a warning that companies need to do a better job of justifying
CEO pay levels by communicating how much value their CEO
creates and how much compensation is required, given the
market for talent, to attract and motivate the right people.”
According to Brian Tayan, researcher at Stanford Graduate
School of Business, “Whether high pay packages are deserved is
a controversial subject. Whether the government can or should
intervene is even more divisive. Public consensus is that there
is a problem. There is much less agreement on a solution.”
The controversy over CEO compensation has reached new
heights with labor unions, media, and political candidates
from both major parties expressing public criticism. According
to Democratic candidate Hillary Clinton, the average CEO
“… is now earning 200 times the average hourly wage. Twenty
years ago the ratio was about forty times. People all over this
country are really upset about this.” According to Republican
candidate Donald Trump, CEO compensation is a “total and
complete joke. … They get whatever they want.” On its website,
the AFL-CIO cites a CEO-to-worker pay ratio of 331:1, adding
that “… in recent decades, corporate CEOs have been taking a
greater share of the economic pie while wages have stagnated
and unemployment remains high.” A Bloomberg report
claims “… the gap between pay for U.S. chief executive officers
and the people who work for them has widened sevenfold in
three decades. Are bosses seven times smarter these days?
Company boards seem to think so.” 1
Recently, the Rock Center for Corporate Governance at Stanford
Universityconductedanationwidesurveyof1,202individuals—
representative by gender, race, age, political affiliation,
household income, and state residence—to understand public
perception of CEO pay levels among the 500 largest publicly
traded corporations.
EXECUTIVE SUMMARY AND KEY FINDINGS
CEOS ARE VASTLY OVERPAID, ACCORDING TO MOST AMERICANS.
MOST SUPPORT DRASTIC REDUCTIONS.
THE PUBLIC IS DIVIDED ON GOVERNMENT INTERVENTION.
1
SALLY BEDELL SMITH, FOR LOVE OF POLITICS (NEW YORK, NY: RANDOM HOUSE, 2007); DAVID KNOWLES, “TRUMP CALLS CEO PAY A ‘JOKE’ BUT VOWS TO SLASH CORPORATE TAXES,” BLOOMBERG.COM
(SEPTEMBER 13, 2015); AFL-CIO, “EXECUTIVE PAYWATCH 2014”; CALEB MELBY, “EXECUTIVE PAY: VALUING CEOS,” BLOOMBERG.COM (AUGUST 13, 2015).
AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 4
KEY FINDINGS INCLUDE THE FOLLOWING:
THE AVERAGE AMERICAN GROSSLY UNDERESTIMATES
HOW MUCH CEOS MAKE
PublicfrustrationwithCEOpayexistsdespiteapublicperception
that CEOs earn only a fraction of their published compensation
amounts. Disclosed CEO pay at Fortune 500 companies is 10
times what the average American believes those CEOs earn. The
typical American believes a CEO earns $1 million in pay (average
of $9.3 million), whereas median reported compensation for
the CEOs of these companies is approximately $10.3 million
(average of $12.2 million).2
Responses vary based on the household income of the
respondent, but all groups underestimate actual compensation.
Lower-income respondents (below $20,000) believe CEOs
earn $500,000 ($9.7 million average), while higher-income
respondents ($150,000 or more) believe CEOs earn $5,000,000
($14.9 million average).
STILL, AMERICANS BELIEVE CEOS ARE OVERPAID
RELATIVE TO THE AVERAGE WORKER
The vast majority (74 percent) of Americans believe that CEOs
are not paid the correct amount relative to the average worker.
Only 16 percent believe they are paid an appropriate amount.
While responses vary by political affiliation, they remain largely
negative. Only one quarter (25 percent) of Republicans believe
CEOs are paid the correct amount relative to the average
worker, compared to 16 percent of Democrats and 11 percent
of Independents.
Nearly two-thirds (62 percent) of Americans believe that there
is a maximum amount CEOs should be paid relative to the
average worker, regardless of the company and its performance.
Interestingly, a majority of all political groups believe CEO pay
should be capped in some manner, though Republicans are
somewhat less likely to hold this opinion (52 percent) than
Democrats (66 percent) or Independents (64 percent).
Those who believe in capping CEO pay relative to the average
worker would do so at a very low multiple. The typical
American would limit CEO pay to no more than 6 times (17.6
times, based on average numbers) that of the average worker.
These figures are significantly below current pay multiples,
which are approximately 210 times based on recent
compensation figures.3
“CEO compensation figures are much higher than the public
is aware of,” observes Professor Larcker. “In many parts of the
country, it is incomprehensible that anyone can earn this much
money. It is understandable that any limit on CEO pay would be
low for most citizens.”
2
MEDIAN VALUE REPRESENTS THE VIEWPOINT OF THE RESPONDENT AT THE 50TH PERCENTILE. THE MEAN AVERAGE IS THE AVERAGE AMOUNT ACROSS ALL RESPONSES. MEAN AVERAGES CAN BE INFLUENCED BY
A RELATIVELY SMALL NUMBER OF OUTLIERS, AND FOR THIS REASON MEDIAN AVERAGE IS A BETTER DESCRIPTOR OF A TYPICAL RESPONDENT’S VIEWPOINT. REPORTED COMPENSATION FIGURES FROM EQUILAR,
“2015 CEO PAY STRATEGIES” (2015).
3
BASED ON MEDIAN CEO COMPENSATION FIGURES IN EQUILAR 2015 AND AVERAGE U.S. PER CAPITA INCOME OF $50,000.
AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 5
OPINIONS VARY ON HOW MUCH TO PAY CEOS
FOR PERFORMANCE
Public opinion varies widely about the degree to which
executives should share in the value created at a company. For
example, when respondents are given a hypothetical situation
in which a company’s value increases by $100 million over the
course of a year, the median respondent believes that the CEO
should receive only 0.5 percent ($500,000) as compensation.
The mean response is 3.2 percent ($3.2 million). Responses do
not vary by political affiliation, with Democrats, Republicans,
and Independents willing to share value in roughly the same
proportion.
“This gets to the heart of the issue of ‘pay for performance,’”
says Donatiello. “Either the public is not sold on the idea that
CEOs should share in value creation to the extent that they
do. Or they do not believe that CEOs play an important role
in value creation. Clearly, companies need to make a stronger
case for how pay is tied to performance—to the extent it is.”
AMERICANS AGREE THERE IS A PROBLEM
BUT ARE SPLIT ON WHETHER THE GOVERNMENT
SHOULD GET INVOLVED
The public strongly believes that CEO compensation is a
problem. A large majority (70 percent) hold this opinion,
compared with only 18 percent who do not think it is a
problem. The view that CEO pay is a problem is substantially
more prevalent among those who identify themselves as
Democrats (78 percent) and Independents (72 percent) than
those who identify themselves as Republicans (54 percent).
Perhaps unexpected, lower-income respondents are less likely
to believe that CEO pay is a problem (54 percent) than higher-
income respondents (72 percent).
In terms of a solution, approximately half of respondents
(49 percent) believe the government should do something
to change current CEO pay practices, approximately one-
third (35 percent) do not believe the government should
intervene, while the remainder have no opinion. Higher-
income respondents (38 percent) are much less likely to favor
government intervention than middle-income (55 percent)
and lower-income (52 percent) respondents. Republicans
and Independents (36 percent and 47 percent, respectively)
are also less likely to favor government intervention than
Democrats (60 percent).
POSSIBLE GOVERNMENT ACTIONS VARY,
NONE OF WHICH IS WIDELY SUPPORTED
Those who favor government intervention support a range
of possible actions, although none alone receives majority or
even close to near-majority support. Twenty-eight percent of
respondents who advocate government intervention would
substantially increase taxes on CEO compensation above a
certainamount;25percentwouldsetastrictlimitonthedollar
amount a CEO can receive relative to the average worker; 17
percent would limit the absolute dollar amount that a CEO can
receive; 17 percent would require more performance-based
compensation; 9 percent would ban the use of stock options in
executive compensation contracts; and 8 percent would ban
the use of all equity compensation in CEO pay packages.
Responses do not vary significantly by income bracket.
However, higher-income respondents are less likely to support
both absolute and relative limits on CEO pay. They are also
less likely to support higher taxes on CEO pay.
Responses do vary by political affiliation, with Democrats
significantly more likely than Republicans to support each of
the interventions listed above.
“The concept of government intervention in restricting or
influencing CEO pay is highly charged,” observes Tayan. “It is
not surprising that viewpoints on government intervention
would be split along ideological lines, especially given the
current political environment.”
AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 6
Less than
$20,000
None or Other
Less than
$20,000
$50,000 but less
than $60,000
$150,000 or
more
Mean Median
Democrat IndependentRepublican
Mean Median
$14,868,207
$500,000
$1,000,000
$5,000,000
$9,718,672
$11,251,409
$50,000 but less
than $60,000
$150,000 or
more
$1,000,000
$14,597,140
$1,350,000
$7,223,028
$1,000,000
$10,867,203
$2,000,000
$9,651,960
Yes No I don’t know
26%
56%
19%
3%
79%
18%
6%15%
79%
14%
75%
11%
11%
78%
11%
14%
25%
61%
None or OtherDemocrat IndependentRepublican
8%
16%
77%
Yes No I don’t know
Median
$9,275,340 $1,000,000
Mean
No
74%
I don’t
know
16%16%
Yes
Review of Findings
1.	 How much do you think the average CEO in the largest
500 U.S. companies is paid in annual compensation?
2.	 In general, do you think that CEOs in the largest 500 U.S.
companies are paid the correct amount relative to the
average worker?
HOUSEHOLD INCOME
POLITICAL AFFILIATION
HOUSEHOLD INCOME
POLITICAL AFFILIATION
AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 7
Less than
$20,000
$50,000 but less
than $60,000
None or OtherDemocrat IndependentRepublican
Mean Median
Less than
$20,000
$200,000
$725,384
$200,000
$849,424
$400,000
$634,607
$500,000
$1,075,983
$50,000 but less
than $60,000
$150,000 or
more
Mean Median
$150,000 or
more
19%
23%
58%
8%
22%
70%
4%
57%
$1,000,000
$361,753
$100,000
$733,113
$225,000
$1,704,060
39%
5%
34%
62%
13%
23%
64%
9%
52%
39%
None or OtherDemocrat IndependentRepublican
10%
66%
24%
Yes No I don’t know
Yes No I don’t know
Median
$882,054
Mean
3.1.	 [If yes]: If the average worker in a company has an annual
income of $50,000, what is the maximum amount the CEO
of that company should make?
No
28%
I don’t
know
62% 10%
Yes
3.	 In general, do you believe there is a maximum amount
that a CEO should be paid relative to the average
worker, no matter the company and its performance?
$300,000
HOUSEHOLD INCOME
POLITICAL AFFILIATION
HOUSEHOLD INCOME
POLITICAL AFFILIATION
AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 8
Less than
$20,000
None or OtherDemocrat IndependentRepublican
Mean Median
$50,000 but less
than $60,000
$150,000 or
more
$500,000
$5,373,080
$500,000
$3,082,360
$500,000
$3,648,513
$500,000
$2,837,763
Mean Median $1,000,000
$5,832,586
$300,000
$2,962,925
$250,000
$2,951,500
Median
$3,227,537 $500,000
Mean
Median
$2,401,215 $250,000
Mean
4.	 Hypothetically, if a company is worth $100 million more than at the beginning of the year, how much of this $100 million should
be given to the CEO as compensation?
[Only people who said Yes to Q3]
HOUSEHOLD INCOME
POLITICAL AFFILIATION
AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 9
Less than
$20,000
$50,000 but less
than $60,000
$150,000 or
more
31%
15%
54%
6%
17%
77%
7%
72%
21%
17%
11%12%13%15%
72%
13%
54%
33%
None or OtherDemocrat IndependentRepublican
78%
9%
13%
Yes No I don’t know
Yes No I don’t know
6.	 Do you believe the government should do something to
change current CEO pay practices?
No
18%
I don’t
know
70% 12%
Yes
5.	 In general, do you believe that CEO compensation at the
largest companies in the U.S. is a problem?
HOUSEHOLD INCOME
POLITICAL AFFILIATION
No
35%
I don’t
know
49% 17%
Yes
Less than
$20,000
$50,000 but less
than $60,000
$150,000 or
more
30%
19%
52%
17%
29%
55%
10%
38%
53%
17%
42%
42%
21%
32%
47%
13%
36%
51%
None or OtherDemocrat IndependentRepublican
60%
14%
26%
Yes No I don’t know
Yes No I don’t know
HOUSEHOLD INCOME
POLITICAL AFFILIATION
AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 10
6.1.	 [If yes]: What should the government do? (select all that apply)
Ban the use
of all equity
compensation
Ban the use of
stock options
Require more
performance-based
compensation
5%6%
5%
7%
5%6%
17%
16%
19%
Less than $20,000 $50,000 but less than $60,000 $150,000 or more
HOUSEHOLD INCOME
20%
29%
22%
9%
22%
21%21%
28%
28%
Set a strict limit
on the dollar
amount a CEO
can receive
relative to the
average worker
Set a strict limit
on the dollar
amount a CEO
can receive
Substantially
Increase taxes
on CEO
compensation
over a
certain amount
Ban the use of all
equity compensation
Ban the use of
stock options
Require more
performance-based
compensation
3%
8%
5%
6%7%
12%
22%
14%
17%
27%
29%
15% 16%
15%
17%
26%
Set a strict limit on the
dollar amount a CEO
can receive relative to
the average worker
Set a strict limit on the
dollar amount a CEO
can receive
Substantially
Increase taxes on CEO
compensation over a
certain amount
Democrat Republican Independent None or other
11%
31%14%
31%
22%
37%
31%
19%
31%
29%
POLITICAL AFFILIATION
19%
6%
Substantially Increase taxes on CEO compensation over a certain amount
Set a strict limit on the dollar amount a CEO can receive relative to the average worker
Require more performance-based compensation
Set a strict limit on the dollar amount a CEO can receive
Ban the use of stock options
Ban the use of all equity compensation
28%
25%
17%
17%
9%
8%
AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 11
2. Age
3. Ethnicity
1. Gender
Male
54% 47%
Female
65 and older
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
18-24
17%
11%
13%
7%
9%
7%
9%
9%
9%
9%
White
Black or African American
Hispanic or Latino
Asian or Pacific Islander
Native American or Alaskan Native
Other
70%
10%
9%
8%
1%
1%
Demographic Information
AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 12
5. Household Income
$150,000 or more
$125,000 but less than $150,000
$100,000 but less than $125,000
$75,000 but less than $100,000
$60,000 but less than $75,000
$50,000 but less than $60,000
$40,000 but less than $50,000
$30,000 but less than $40,000
$20,000 but less than $30,000
Less than $20,000
8%
9%
11%
17%
7%
8%
7%
10%
12%
11%
6. State
California
Florida
Texas
Illinois
New York
Ohio
Pennsylvania
Maryland
North Carolina
12.8%
11.1%
7.4%
5.7%
5.3%
3.9%
3.3%
3.0%
3.0%
4. Political Affiliation
Democrat
Independent
Republican
None or other
36%
36%
23%
6%
AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 13
Georgia
Michigan
Virginia
New Jersey
Washington
Massachusetts
Missouri
Oklahoma
Oregon
Wisconsin
Alabama
Arizona
Indiana
Iowa
Colorado
Tennessee
Connecticut
Minnesota
Louisiana
Kentucky
Utah
Nevada
South Carolina
Arkansas
Hawaii
District of Columbia
Idaho
Kansas
Mississippi
Nebraska
2.9%
2.8%
2.7%
2.3%
1.9%
1.8%
1.8%
1.8%
1.8%
1.8%
1.7%
1.7%
1.7%
1.5%
1.3%
1.3%
1.2%
1.2%
1.0%
0.9%
0.9%
0.8%
0.8%
0.7%
0.7%
0.6%
0.6%
0.6%
0.6%
0.6%
AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 14
Delaware
New Mexico
West Virginia
Maine
North Dakota
New Hampshire
Rhode Island
South Dakota
Vermont
Montana
Alaska
Wyoming
0.4%
0.4%
0.4%
0.3%
0.3%
0.2%
0.2%
0.2%
0.2%
0.1%
0.0%
0.0%
AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 15
METHODOLOGY
IN NOVEMBER 2015, THE ROCK CENTER FOR CORPORATE GOVERNANCE
AT STANFORD UNIVERSITY CONDUCTED A NATIONWIDE SURVEY OF 1,202
INDIVIDUALS—REPRESENTATIVE BY GENDER, RACE, AGE, POLITICAL
AFFILIATION, HOUSEHOLD INCOME, AND STATE RESIDENCE—TO UNDERSTAND
PUBLIC PERCEPTION OF CEO PAY LEVELS AMONG THE 500 LARGEST PUBLICLY
TRADED CORPORATIONS.
ABOUT THE AUTHORS
DAVID F. LARCKER
David F. Larcker is the James Irvin Miller Professor of Accounting at Stanford
Graduate School of Business; director of the Corporate Governance Research
Initiative; and senior faculty of the Arthur and Toni Rembe Rock Center for
Corporate Governance. His research focuses on executive compensation and
corporate governance. Professor Larcker presently serves on the Board of
Trustees for Wells Fargo Advantage Funds. He is coauthor of the books A Real
Look at Real World Corporate Governance and Corporate Governance Matters.
Email: dlarcker@stanford.edu
Twitter: @stanfordcorpgov
Full Bio: http://www.gsb.stanford.edu/faculty-research/faculty/david-f-larcker
NICHOLAS DONATIELLO
Nicholas Donatiello is a recognized expert in the areas of consumers, media,
and technology. He is president and CEO of Odyssey and a lecturer at Stanford
Graduate School of Business, where he lectures on the roles, responsibilities,
and performance of boards in public, early stage private and not-for-profit
companies. Donatiello is Chairman of the Board of several of the American
Funds from Capital Research and Management. He is also a member of the
Board of both public and early stage private companies including Dolby
Laboratories, where he chairs the Compensation Committee, and Big 5
Sporting Goods. Donatiello is a director of the Schwab Charitable Fund, one of
the nation’s largest grantmaking charities, distributing more than $1 billion in
annual grants to charities. He chairs the Compensation Committee.
Email: donatiello@stanford.edu
Twitter: @nickdonatiello
Full Bio: http://www.gsb.stanford.edu/faculty-research/faculty/nicholas-donatiello
AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 16
ABOUT THE AUTHORS (cont)
ACKNOWLEDGMENTS
THE AUTHORS WOULD LIKE TO THANK MICHELLE E. GUTMAN OF
THE CORPORATE GOVERNANCE RESEARCH INITIATIVE AT STANFORD
GRADUATE SCHOOL OF BUSINESS FOR HER RESEARCH ASSISTANCE ON
THIS STUDY.
BRIAN TAYAN
Brian Tayan is a member of the Corporate Governance Research Initiative at
Stanford Graduate School of Business. He has written broadly on the subject of
corporate governance, including the boards of directors, succession planning,
compensation, financial accounting, and shareholder relations. He is coauthor
with David Larcker of the books A Real Look at Real World Corporate Governance
and Corporate Governance Matters.
Email: btayan@stanford.edu
AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 17
ABOUT
CORPORATE GOVERNANCE
RESEARCH INITIATIVE
The Corporate Governance Research Initiative at Stanford
Graduate School of Business focuses on research to advance
the intellectual understanding of corporate governance, both
domestically and abroad. By collaborating with academics
and practitioners from the public and private sectors, we
seek to generate insights into critical issues and bridge the
gap between theory and practice. Our research covers a
broad range of topics that include executive compensation,
board governance, CEO succession, and proxy voting.
gsb.stanford.edu/cgri
CONTACT INFORMATION
FOR MORE INFORMATION ON THIS REPORT, PLEASE CONTACT:
HEATHER HANSEN
ASSISTANT COMMUNICATIONS DIRECTOR
Stanford Graduate School of Business
Knight Management Center
Stanford University
655 Knight Way
Stanford, CA 94305-7298
Phone: +1.650.723.0887
hhansen@stanford.edu
Copyright ©2016 Stanford Graduate School of Business and the Rock Center for Corporate Governance
THE ROCK CENTER FOR
CORPORATE GOVERNANCE
The Arthur and Toni Rembe Rock Center for Corporate
Governance is a joint initiative of Stanford Law School
and Stanford Graduate School of Business. The center
was created to advance the understanding and practice of
corporate governance in a cross-disciplinary environment
where leading academics, business leaders, policy makers,
practitioners, and regulators can meet and work together.
www.rockcenter.law.stanford.edu

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Americans and CEO Pay: 2016 Public Perception Survey on CEO Compensation

  • 1. AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION WWW.GSB.STANFORD.EDU/CGRI
  • 2. TA B L E O F C O N T E N T S Executive Summary and Key Findings...........................3 Review of Findings..............................................................6 Demographic Information..............................................11 Methodology....................................................................15 About the Authors...........................................................15 About Stanford Graduate School of Business and the Rock Center for Corporate Governance...............17 Contact Information.......................................................17
  • 3. AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 3 Seventy-fourpercentofAmericansbelieveCEOsarenotpaidthe correct amount relative to the average worker. Only 16 percent believe they are. While responses vary across demographic groups (e.g., political affiliation and household income), overall sentiment regarding CEO pay remains highly negative. “ThereisaclearsenseamongtheAmericanpublicthatCEOsare taking home much more in compensation than they deserve,” says Professor David F. Larcker of Stanford Graduate School of Business. “While we find that members of the public are not particularly knowledgeable about how much CEOs actually make in annual pay, there is a general sense of outrage fueled in part by the political environment.” “Corporations and their boards need to do a better job explaining and justifying CEO pay arrangements,” adds Nick Donatiello, lecturer in corporate governance at Stanford Graduate School of Business. “It is remarkable when 74 percent of Americans agree about anything in today’s environment— particularly something as politically charged as CEO pay. This is a warning that companies need to do a better job of justifying CEO pay levels by communicating how much value their CEO creates and how much compensation is required, given the market for talent, to attract and motivate the right people.” According to Brian Tayan, researcher at Stanford Graduate School of Business, “Whether high pay packages are deserved is a controversial subject. Whether the government can or should intervene is even more divisive. Public consensus is that there is a problem. There is much less agreement on a solution.” The controversy over CEO compensation has reached new heights with labor unions, media, and political candidates from both major parties expressing public criticism. According to Democratic candidate Hillary Clinton, the average CEO “… is now earning 200 times the average hourly wage. Twenty years ago the ratio was about forty times. People all over this country are really upset about this.” According to Republican candidate Donald Trump, CEO compensation is a “total and complete joke. … They get whatever they want.” On its website, the AFL-CIO cites a CEO-to-worker pay ratio of 331:1, adding that “… in recent decades, corporate CEOs have been taking a greater share of the economic pie while wages have stagnated and unemployment remains high.” A Bloomberg report claims “… the gap between pay for U.S. chief executive officers and the people who work for them has widened sevenfold in three decades. Are bosses seven times smarter these days? Company boards seem to think so.” 1 Recently, the Rock Center for Corporate Governance at Stanford Universityconductedanationwidesurveyof1,202individuals— representative by gender, race, age, political affiliation, household income, and state residence—to understand public perception of CEO pay levels among the 500 largest publicly traded corporations. EXECUTIVE SUMMARY AND KEY FINDINGS CEOS ARE VASTLY OVERPAID, ACCORDING TO MOST AMERICANS. MOST SUPPORT DRASTIC REDUCTIONS. THE PUBLIC IS DIVIDED ON GOVERNMENT INTERVENTION. 1 SALLY BEDELL SMITH, FOR LOVE OF POLITICS (NEW YORK, NY: RANDOM HOUSE, 2007); DAVID KNOWLES, “TRUMP CALLS CEO PAY A ‘JOKE’ BUT VOWS TO SLASH CORPORATE TAXES,” BLOOMBERG.COM (SEPTEMBER 13, 2015); AFL-CIO, “EXECUTIVE PAYWATCH 2014”; CALEB MELBY, “EXECUTIVE PAY: VALUING CEOS,” BLOOMBERG.COM (AUGUST 13, 2015).
  • 4. AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 4 KEY FINDINGS INCLUDE THE FOLLOWING: THE AVERAGE AMERICAN GROSSLY UNDERESTIMATES HOW MUCH CEOS MAKE PublicfrustrationwithCEOpayexistsdespiteapublicperception that CEOs earn only a fraction of their published compensation amounts. Disclosed CEO pay at Fortune 500 companies is 10 times what the average American believes those CEOs earn. The typical American believes a CEO earns $1 million in pay (average of $9.3 million), whereas median reported compensation for the CEOs of these companies is approximately $10.3 million (average of $12.2 million).2 Responses vary based on the household income of the respondent, but all groups underestimate actual compensation. Lower-income respondents (below $20,000) believe CEOs earn $500,000 ($9.7 million average), while higher-income respondents ($150,000 or more) believe CEOs earn $5,000,000 ($14.9 million average). STILL, AMERICANS BELIEVE CEOS ARE OVERPAID RELATIVE TO THE AVERAGE WORKER The vast majority (74 percent) of Americans believe that CEOs are not paid the correct amount relative to the average worker. Only 16 percent believe they are paid an appropriate amount. While responses vary by political affiliation, they remain largely negative. Only one quarter (25 percent) of Republicans believe CEOs are paid the correct amount relative to the average worker, compared to 16 percent of Democrats and 11 percent of Independents. Nearly two-thirds (62 percent) of Americans believe that there is a maximum amount CEOs should be paid relative to the average worker, regardless of the company and its performance. Interestingly, a majority of all political groups believe CEO pay should be capped in some manner, though Republicans are somewhat less likely to hold this opinion (52 percent) than Democrats (66 percent) or Independents (64 percent). Those who believe in capping CEO pay relative to the average worker would do so at a very low multiple. The typical American would limit CEO pay to no more than 6 times (17.6 times, based on average numbers) that of the average worker. These figures are significantly below current pay multiples, which are approximately 210 times based on recent compensation figures.3 “CEO compensation figures are much higher than the public is aware of,” observes Professor Larcker. “In many parts of the country, it is incomprehensible that anyone can earn this much money. It is understandable that any limit on CEO pay would be low for most citizens.” 2 MEDIAN VALUE REPRESENTS THE VIEWPOINT OF THE RESPONDENT AT THE 50TH PERCENTILE. THE MEAN AVERAGE IS THE AVERAGE AMOUNT ACROSS ALL RESPONSES. MEAN AVERAGES CAN BE INFLUENCED BY A RELATIVELY SMALL NUMBER OF OUTLIERS, AND FOR THIS REASON MEDIAN AVERAGE IS A BETTER DESCRIPTOR OF A TYPICAL RESPONDENT’S VIEWPOINT. REPORTED COMPENSATION FIGURES FROM EQUILAR, “2015 CEO PAY STRATEGIES” (2015). 3 BASED ON MEDIAN CEO COMPENSATION FIGURES IN EQUILAR 2015 AND AVERAGE U.S. PER CAPITA INCOME OF $50,000.
  • 5. AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 5 OPINIONS VARY ON HOW MUCH TO PAY CEOS FOR PERFORMANCE Public opinion varies widely about the degree to which executives should share in the value created at a company. For example, when respondents are given a hypothetical situation in which a company’s value increases by $100 million over the course of a year, the median respondent believes that the CEO should receive only 0.5 percent ($500,000) as compensation. The mean response is 3.2 percent ($3.2 million). Responses do not vary by political affiliation, with Democrats, Republicans, and Independents willing to share value in roughly the same proportion. “This gets to the heart of the issue of ‘pay for performance,’” says Donatiello. “Either the public is not sold on the idea that CEOs should share in value creation to the extent that they do. Or they do not believe that CEOs play an important role in value creation. Clearly, companies need to make a stronger case for how pay is tied to performance—to the extent it is.” AMERICANS AGREE THERE IS A PROBLEM BUT ARE SPLIT ON WHETHER THE GOVERNMENT SHOULD GET INVOLVED The public strongly believes that CEO compensation is a problem. A large majority (70 percent) hold this opinion, compared with only 18 percent who do not think it is a problem. The view that CEO pay is a problem is substantially more prevalent among those who identify themselves as Democrats (78 percent) and Independents (72 percent) than those who identify themselves as Republicans (54 percent). Perhaps unexpected, lower-income respondents are less likely to believe that CEO pay is a problem (54 percent) than higher- income respondents (72 percent). In terms of a solution, approximately half of respondents (49 percent) believe the government should do something to change current CEO pay practices, approximately one- third (35 percent) do not believe the government should intervene, while the remainder have no opinion. Higher- income respondents (38 percent) are much less likely to favor government intervention than middle-income (55 percent) and lower-income (52 percent) respondents. Republicans and Independents (36 percent and 47 percent, respectively) are also less likely to favor government intervention than Democrats (60 percent). POSSIBLE GOVERNMENT ACTIONS VARY, NONE OF WHICH IS WIDELY SUPPORTED Those who favor government intervention support a range of possible actions, although none alone receives majority or even close to near-majority support. Twenty-eight percent of respondents who advocate government intervention would substantially increase taxes on CEO compensation above a certainamount;25percentwouldsetastrictlimitonthedollar amount a CEO can receive relative to the average worker; 17 percent would limit the absolute dollar amount that a CEO can receive; 17 percent would require more performance-based compensation; 9 percent would ban the use of stock options in executive compensation contracts; and 8 percent would ban the use of all equity compensation in CEO pay packages. Responses do not vary significantly by income bracket. However, higher-income respondents are less likely to support both absolute and relative limits on CEO pay. They are also less likely to support higher taxes on CEO pay. Responses do vary by political affiliation, with Democrats significantly more likely than Republicans to support each of the interventions listed above. “The concept of government intervention in restricting or influencing CEO pay is highly charged,” observes Tayan. “It is not surprising that viewpoints on government intervention would be split along ideological lines, especially given the current political environment.”
  • 6. AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 6 Less than $20,000 None or Other Less than $20,000 $50,000 but less than $60,000 $150,000 or more Mean Median Democrat IndependentRepublican Mean Median $14,868,207 $500,000 $1,000,000 $5,000,000 $9,718,672 $11,251,409 $50,000 but less than $60,000 $150,000 or more $1,000,000 $14,597,140 $1,350,000 $7,223,028 $1,000,000 $10,867,203 $2,000,000 $9,651,960 Yes No I don’t know 26% 56% 19% 3% 79% 18% 6%15% 79% 14% 75% 11% 11% 78% 11% 14% 25% 61% None or OtherDemocrat IndependentRepublican 8% 16% 77% Yes No I don’t know Median $9,275,340 $1,000,000 Mean No 74% I don’t know 16%16% Yes Review of Findings 1. How much do you think the average CEO in the largest 500 U.S. companies is paid in annual compensation? 2. In general, do you think that CEOs in the largest 500 U.S. companies are paid the correct amount relative to the average worker? HOUSEHOLD INCOME POLITICAL AFFILIATION HOUSEHOLD INCOME POLITICAL AFFILIATION
  • 7. AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 7 Less than $20,000 $50,000 but less than $60,000 None or OtherDemocrat IndependentRepublican Mean Median Less than $20,000 $200,000 $725,384 $200,000 $849,424 $400,000 $634,607 $500,000 $1,075,983 $50,000 but less than $60,000 $150,000 or more Mean Median $150,000 or more 19% 23% 58% 8% 22% 70% 4% 57% $1,000,000 $361,753 $100,000 $733,113 $225,000 $1,704,060 39% 5% 34% 62% 13% 23% 64% 9% 52% 39% None or OtherDemocrat IndependentRepublican 10% 66% 24% Yes No I don’t know Yes No I don’t know Median $882,054 Mean 3.1. [If yes]: If the average worker in a company has an annual income of $50,000, what is the maximum amount the CEO of that company should make? No 28% I don’t know 62% 10% Yes 3. In general, do you believe there is a maximum amount that a CEO should be paid relative to the average worker, no matter the company and its performance? $300,000 HOUSEHOLD INCOME POLITICAL AFFILIATION HOUSEHOLD INCOME POLITICAL AFFILIATION
  • 8. AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 8 Less than $20,000 None or OtherDemocrat IndependentRepublican Mean Median $50,000 but less than $60,000 $150,000 or more $500,000 $5,373,080 $500,000 $3,082,360 $500,000 $3,648,513 $500,000 $2,837,763 Mean Median $1,000,000 $5,832,586 $300,000 $2,962,925 $250,000 $2,951,500 Median $3,227,537 $500,000 Mean Median $2,401,215 $250,000 Mean 4. Hypothetically, if a company is worth $100 million more than at the beginning of the year, how much of this $100 million should be given to the CEO as compensation? [Only people who said Yes to Q3] HOUSEHOLD INCOME POLITICAL AFFILIATION
  • 9. AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 9 Less than $20,000 $50,000 but less than $60,000 $150,000 or more 31% 15% 54% 6% 17% 77% 7% 72% 21% 17% 11%12%13%15% 72% 13% 54% 33% None or OtherDemocrat IndependentRepublican 78% 9% 13% Yes No I don’t know Yes No I don’t know 6. Do you believe the government should do something to change current CEO pay practices? No 18% I don’t know 70% 12% Yes 5. In general, do you believe that CEO compensation at the largest companies in the U.S. is a problem? HOUSEHOLD INCOME POLITICAL AFFILIATION No 35% I don’t know 49% 17% Yes Less than $20,000 $50,000 but less than $60,000 $150,000 or more 30% 19% 52% 17% 29% 55% 10% 38% 53% 17% 42% 42% 21% 32% 47% 13% 36% 51% None or OtherDemocrat IndependentRepublican 60% 14% 26% Yes No I don’t know Yes No I don’t know HOUSEHOLD INCOME POLITICAL AFFILIATION
  • 10. AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 10 6.1. [If yes]: What should the government do? (select all that apply) Ban the use of all equity compensation Ban the use of stock options Require more performance-based compensation 5%6% 5% 7% 5%6% 17% 16% 19% Less than $20,000 $50,000 but less than $60,000 $150,000 or more HOUSEHOLD INCOME 20% 29% 22% 9% 22% 21%21% 28% 28% Set a strict limit on the dollar amount a CEO can receive relative to the average worker Set a strict limit on the dollar amount a CEO can receive Substantially Increase taxes on CEO compensation over a certain amount Ban the use of all equity compensation Ban the use of stock options Require more performance-based compensation 3% 8% 5% 6%7% 12% 22% 14% 17% 27% 29% 15% 16% 15% 17% 26% Set a strict limit on the dollar amount a CEO can receive relative to the average worker Set a strict limit on the dollar amount a CEO can receive Substantially Increase taxes on CEO compensation over a certain amount Democrat Republican Independent None or other 11% 31%14% 31% 22% 37% 31% 19% 31% 29% POLITICAL AFFILIATION 19% 6% Substantially Increase taxes on CEO compensation over a certain amount Set a strict limit on the dollar amount a CEO can receive relative to the average worker Require more performance-based compensation Set a strict limit on the dollar amount a CEO can receive Ban the use of stock options Ban the use of all equity compensation 28% 25% 17% 17% 9% 8%
  • 11. AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 11 2. Age 3. Ethnicity 1. Gender Male 54% 47% Female 65 and older 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 18-24 17% 11% 13% 7% 9% 7% 9% 9% 9% 9% White Black or African American Hispanic or Latino Asian or Pacific Islander Native American or Alaskan Native Other 70% 10% 9% 8% 1% 1% Demographic Information
  • 12. AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 12 5. Household Income $150,000 or more $125,000 but less than $150,000 $100,000 but less than $125,000 $75,000 but less than $100,000 $60,000 but less than $75,000 $50,000 but less than $60,000 $40,000 but less than $50,000 $30,000 but less than $40,000 $20,000 but less than $30,000 Less than $20,000 8% 9% 11% 17% 7% 8% 7% 10% 12% 11% 6. State California Florida Texas Illinois New York Ohio Pennsylvania Maryland North Carolina 12.8% 11.1% 7.4% 5.7% 5.3% 3.9% 3.3% 3.0% 3.0% 4. Political Affiliation Democrat Independent Republican None or other 36% 36% 23% 6%
  • 13. AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 13 Georgia Michigan Virginia New Jersey Washington Massachusetts Missouri Oklahoma Oregon Wisconsin Alabama Arizona Indiana Iowa Colorado Tennessee Connecticut Minnesota Louisiana Kentucky Utah Nevada South Carolina Arkansas Hawaii District of Columbia Idaho Kansas Mississippi Nebraska 2.9% 2.8% 2.7% 2.3% 1.9% 1.8% 1.8% 1.8% 1.8% 1.8% 1.7% 1.7% 1.7% 1.5% 1.3% 1.3% 1.2% 1.2% 1.0% 0.9% 0.9% 0.8% 0.8% 0.7% 0.7% 0.6% 0.6% 0.6% 0.6% 0.6%
  • 14. AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 14 Delaware New Mexico West Virginia Maine North Dakota New Hampshire Rhode Island South Dakota Vermont Montana Alaska Wyoming 0.4% 0.4% 0.4% 0.3% 0.3% 0.2% 0.2% 0.2% 0.2% 0.1% 0.0% 0.0%
  • 15. AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 15 METHODOLOGY IN NOVEMBER 2015, THE ROCK CENTER FOR CORPORATE GOVERNANCE AT STANFORD UNIVERSITY CONDUCTED A NATIONWIDE SURVEY OF 1,202 INDIVIDUALS—REPRESENTATIVE BY GENDER, RACE, AGE, POLITICAL AFFILIATION, HOUSEHOLD INCOME, AND STATE RESIDENCE—TO UNDERSTAND PUBLIC PERCEPTION OF CEO PAY LEVELS AMONG THE 500 LARGEST PUBLICLY TRADED CORPORATIONS. ABOUT THE AUTHORS DAVID F. LARCKER David F. Larcker is the James Irvin Miller Professor of Accounting at Stanford Graduate School of Business; director of the Corporate Governance Research Initiative; and senior faculty of the Arthur and Toni Rembe Rock Center for Corporate Governance. His research focuses on executive compensation and corporate governance. Professor Larcker presently serves on the Board of Trustees for Wells Fargo Advantage Funds. He is coauthor of the books A Real Look at Real World Corporate Governance and Corporate Governance Matters. Email: dlarcker@stanford.edu Twitter: @stanfordcorpgov Full Bio: http://www.gsb.stanford.edu/faculty-research/faculty/david-f-larcker NICHOLAS DONATIELLO Nicholas Donatiello is a recognized expert in the areas of consumers, media, and technology. He is president and CEO of Odyssey and a lecturer at Stanford Graduate School of Business, where he lectures on the roles, responsibilities, and performance of boards in public, early stage private and not-for-profit companies. Donatiello is Chairman of the Board of several of the American Funds from Capital Research and Management. He is also a member of the Board of both public and early stage private companies including Dolby Laboratories, where he chairs the Compensation Committee, and Big 5 Sporting Goods. Donatiello is a director of the Schwab Charitable Fund, one of the nation’s largest grantmaking charities, distributing more than $1 billion in annual grants to charities. He chairs the Compensation Committee. Email: donatiello@stanford.edu Twitter: @nickdonatiello Full Bio: http://www.gsb.stanford.edu/faculty-research/faculty/nicholas-donatiello
  • 16. AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 16 ABOUT THE AUTHORS (cont) ACKNOWLEDGMENTS THE AUTHORS WOULD LIKE TO THANK MICHELLE E. GUTMAN OF THE CORPORATE GOVERNANCE RESEARCH INITIATIVE AT STANFORD GRADUATE SCHOOL OF BUSINESS FOR HER RESEARCH ASSISTANCE ON THIS STUDY. BRIAN TAYAN Brian Tayan is a member of the Corporate Governance Research Initiative at Stanford Graduate School of Business. He has written broadly on the subject of corporate governance, including the boards of directors, succession planning, compensation, financial accounting, and shareholder relations. He is coauthor with David Larcker of the books A Real Look at Real World Corporate Governance and Corporate Governance Matters. Email: btayan@stanford.edu
  • 17. AMERICANS AND CEO PAY: 2016 PUBLIC PERCEPTION SURVEY ON CEO COMPENSATION 17 ABOUT CORPORATE GOVERNANCE RESEARCH INITIATIVE The Corporate Governance Research Initiative at Stanford Graduate School of Business focuses on research to advance the intellectual understanding of corporate governance, both domestically and abroad. By collaborating with academics and practitioners from the public and private sectors, we seek to generate insights into critical issues and bridge the gap between theory and practice. Our research covers a broad range of topics that include executive compensation, board governance, CEO succession, and proxy voting. gsb.stanford.edu/cgri CONTACT INFORMATION FOR MORE INFORMATION ON THIS REPORT, PLEASE CONTACT: HEATHER HANSEN ASSISTANT COMMUNICATIONS DIRECTOR Stanford Graduate School of Business Knight Management Center Stanford University 655 Knight Way Stanford, CA 94305-7298 Phone: +1.650.723.0887 hhansen@stanford.edu Copyright ©2016 Stanford Graduate School of Business and the Rock Center for Corporate Governance THE ROCK CENTER FOR CORPORATE GOVERNANCE The Arthur and Toni Rembe Rock Center for Corporate Governance is a joint initiative of Stanford Law School and Stanford Graduate School of Business. The center was created to advance the understanding and practice of corporate governance in a cross-disciplinary environment where leading academics, business leaders, policy makers, practitioners, and regulators can meet and work together. www.rockcenter.law.stanford.edu