American CEO Compensations in the Fortune 500
For the past decades, American Chief Executives Officers in best companies have received huge compensation as indicated by the fortune magazine. In the 21st century, the fortune magazine has created a platform for its readers to comprehend the annual records of the largest and successful companies in the U.S. The list is usually compiled together using the recent figures for sales and revenues for both private and public companies. With this in mind, the collective performance and records of the fortune 500 companies creates great insights on how known and successful companies operate. Overall, the Fortune magazine affirms that most CEOs take home a huge compensation, which in turn attracts many people to this position. It is a well-documented fact that, American CEO compensations in the Fortune 500 continues to increase, which reflects their changing role. This paper begins by providing a brief overview about American CEO Compensations in the Fortune 500. Next, the general trends in compensations and recent changes are supported and outlined. To provide a thorough explanation, the paper discusses whether or not the recent changes in compensations are well reserved or not. Lastly, the paper provides a comprehensive analysis about Women CEO’s and African American and US minorities CEO’s.
General trends of the American CEO Compensations in the Fortune 500
To fully understand the general trends of the American CEO compensations in the biggest companies, it is important to understand the basic components of the CEO compensation packages. In brief, the compensation packages include five components, which are annual bonus, restricted stock gains, restricted option gains, payouts from the long-term enticement plans, and salary. Additionally, CEOs receive extra benefits such as pension plans, various privileges, and severance payments in case of their dismissal or departure. The importance of the mentioned compensation package has considerably changed over time before and after the 1970s.
The evolution of the American Executive Directors can be divided into two sections, prior to the 70s and after the 70s. A study by Shin (11) observes that, before 1970s, CEOs received low compensations, which as a result, discouraged many from this position. From 1900s to the 1950s, the American CEO compensation included annual bonus and salary. Unlike in the modern world where CEO are mostly compensated in cash, annual bonuses were non-discretionary paid in either stock or cash in 1950s. The incentive plans based on the performance made a noticeable impact on Executives pay in the 1960s. During the 80s and 90s, the stock options of payment was the biggest component of the CEO pay. It is important to note that, the three basic components of the American CEO compensation packages in the best companies that obtained less attention were pensions and perquisites pay. Receiving a huge compensation package has been complex until in the 21st century where there have been huge American CEO Compensations in the biggest companies as indicated in the fortune magazine.
However, there has been a dramatic change from the mid 70s to the early 2000s, where the CEO compensation packages have grown tremendously. Although there has been a huge difference on the CEO compensation between 1970s and 2000s, there is no existing theory or research that fully provides convincing explanations of the regime change. The subject has been controversial and many theories have attempted to explain the series and patterns of the time series between 1970s and 2000s.
Following the slow decline of economic growth during World War 11and later sharp decline in the late 40s, the compensation packages increased slowly from 1950s to 1970s amounting to about 0.9 % payment growth per year (Shin 17). The growth in American CEO Compensation at the biggest companies began in the 1970s and continued until 2005 as indicated in the following chart. As indicated in the chart below, the compensation packages as per 2005 was cash followed by stock then units. Most CEO received the three basic components as indicated in the chart below.
Fortune 500 CEO Award components in 2005
The upsurge in compensation was so dramatic in the 90s that, the annual growth was more than 10% of the past decades. The CEO compensation grew rapidly more than any other pay of the top executives. The surge in American CEO pays replicated in large number from 1990s to 2000s for all biggest companies. For the American CEO in the fortune 500, the pay has increased immensely since $2.4m in 1990s to the peak of $7.4m in 2000 and the pay continues to increase in the 21st century. The following section presents an analysis of the recent trends in compensation.
There has been a dramatic change on the American compensation packages in the fortune 500 between 19th century and 21st century. According to Shin (22), CEOs compensation has been contentious and complex subject. In the 21st century, the high level of Executive compensation in the United States has stimulated a strong debate about the aspect of the pay-setting and the consequences it produces. In this regard, some researchers like Lipman and Hall (45) argue that the large CEO compensation packages are as a result of competent managers setting their own desirable compensation. Others believe that both the competitive market forces as well as managerial power are crucial determinants of the American CEO pay.
Based on the latest edition of the Fortune Magazine, Lipman and Hall (48) affirm that there was an upsurge payment between the CEO compensation and other workers’ compensation in 2011. In the article entitled, 10 Female CEOs Who Earn More Than Most Male CEOs In The S&P 500 2012, Woodruff, Mandi, and Giang Vivian gave their thoughts on how the American Executive Directors in the fortune 500 achieved an average compensation of $12 million in 2011, which the authors approximates to about 300 times of what an average worker made. The article continues to argue that, the American CEO compensation in the fortune 500 has increased rapidly from the 19th century to the 21st century. The CEO of the American 500 best companies received 6% compensation pay raise last year, which amounts to 54% of their compensation in 2004 (Shin 46). In total, Shin continues to argue that the American CEOs earned $5.5 billion in 2012. The average compensation paycheck last year accounted for $10.9 million for each boss. The American Executive Directors compensations in the Fortune 500 stock gains amounted to 51% of the total compensation last year. When calculating the CEO total pay, the Fortune magazine measures earnings, bonuses, and other compensation such as long-term incentive payouts and stock gains just to name a few.
A study conducted by Lipman (12) indicates that, the CEOs pay in the biggest American companies increased by 5% since 2012 to 2013. The increase outlined in the study present further proofs that there is market stabilization following the financial crisis experienced in 2008 that caused most companies to reduce the compensation package for their CEOs. In this case, Lipman affirm that the past increase in compensation packages for the American CEO in the fortune 500 was driven by the rising level of the stock compensation that led companies to increase pay for their Executive Directors. While the compensation pay level, remains relatively stable, companies continues to adjust the pay structure that retains competent board members.
As indicated in the above diagram, the American CEO compensation has increased rapidly from 1980 to 2010 (Shin 99). The average CEO compensation at the biggest companies in the United States have received huge packages compared to other top executives. With this in mind, the huge CEO compensation packages retain most competent CEO in the fortune 500.
Opinions In Regard To These Compensations
As mentioned in the previous section, there has been a dramatic change between the past and recent American compensation in the fortune 500. As the compensation packages continue to increase at a high rate, different people have had different opinions in regard to the recent change to these compensations. Before discussing on these opinions, it is important to highlight well-paid CEO in different companies. According to Saha (1), Rex Tilleson is the well-paid CEO in the Exxon Mobil who receive a compensation package that approximates to $21m annually. Aubrey McClendon is the next well paid for Chesapeake energy who receives a compensation package of $19.7m. Typically, Lawrence Ellison J from Oracle Technology Company receives a compensation package of at least $60m annually.
To Shin (44), CEOs deserve the huge compensation packages since their duties and responsibilities have increased in the 21st century. As the world revolves with technology, there has been a need to have competent CEOs who respond to the needs and demands of the technological world such as creativity and intelligence. With this in mind, most CEO in the biggest companies in the United States as indicated in the fortune magazine demands huge compensation to effectively and competently respond to the needs and demands of the technological world. Thus far, this research affirm that the American CEO in best American companies such as Oracle, Amgen, IBM, Visteon, Jarden, BlackRock, Aon, AT&T. ExxonMobil, Apache, and Chesapeake Energy deserve huge compensations. Further, Shin (33) supports this argument by affirming that, CEOs of big companies play a huge role in enhancing success to the organization. In this regard, Shin affirm that American CEOs in the fortune 500 are worth receiving the huge compensation packages.
In contrast to Previts (18), CEOs are not worth receiving the huge compensation packages. The huge American CEO compensation reveals that most CEOs are self-centered. With this in mind, Previts affirm that if the shareholders fail to perfectly monitor CEOs, they are more likely to achieve huge compensation packages for their well-being even at the expense of the shareholder value. The huge American executive compensation can only be applied by aligning shareholders’ interest with those of managers. In principle, the CEO’s compensation pay should only be based on whether the CEO has effectively carried his or her duties to maximize the shareholder value. If so, the CEO is worth the compensation for his good on retaining value in the company. However, if the CEO has not effectively maximized the shareholder value he or she is not worth the huge compensation package. This reveals that the correct measure of the CEO compensations depends on how their performance and behavior affect firm values and objectives.
Although some researchers outline how ineffective it is to pay American CEO huge compensation packages, it is significant to acknowledge that the increase in CEO pay is the proficient way of increasing the demand for CEO effort and managerial talent. This implies that, if the CEO talent is valuable in biggest American firms, then the firms should be willing to offer huge compensation packages to have competent CEOs in the labour market. Additionally, the changes in companies markets, technologies, products, and characteristics over the past three decades have increased the demand of CEO talent and effort on the company’s value and therefore dictates the optimal level of pay and incentives. Similarly, the efficiency of managerial talent and effort have increased due to intense competition in the labour market. The competitive advantage has to be accompanied by the high level of compensating managers. In this regard, it is not surprising that the American CEO compensation at the largest companies will continue to increase having in mind that the corporate world has strengthened over the past three decades. Women CEOs and their compensations
Although men make up a high fraction of the high level of corporate positions, women who obtain such positions earn more than men. In essence, women have emerged in the marketplace and for the past decades they are doing tremendously well. The number of Fortune 500 women CEOs has increased from 1990s to the 2000s (Previts 19). A research done by White (55) indicates that women have emerged in the market place and they are launching businesses more times than men. From 19th century to 20th century, the number of women running and managing Fortune 500 companies such as PepsiCo and IBM have increased. Among the American CEO Compensations in the fortune 500, women have fully represented themselves in a remarkable way.
A research conducted by Previts (29) indicates that, over 20 women CEOs made a notable improvement in the fortune 500 lists in 2011. In the 21st century, women have confirmed that they can be just as successful and effective like men. These women include Irene Rosenfeld the Executive Director of Kraft Foods, Carol Meyrowitz the CEO and President of the TJX company, and Indar Nooyi the CEO and chairman of PepsiCo. The mentioned women have changed the outlook and perception of women in the corporate world. Their business practice, intelligence, and journey of managing the company are truly inspiring. The mentioned women are also the most paid CEOs in the human history. To fully understand women CEOs and their compensation, this section provides a brief overview of different CEO annual compensation.
Irene Rosenfeld is well known for her leadership skills since 2006 (Previts 22). Born in 1953, Irene has been the chairwoman and CEO of one of the largest food company in the world Kraft Foods. In her career, Irene emerges as a dedicated business leader and her visionary to organizational growth distinguishes her as the most influential women CEOs of the modern time. Most business leaders emulate her for her devotion to the company. In 2008, Irene ranked the second of the top ten most powerful and profitable women. Irene receives an annual compensation of $19.3 million. On the other hand, Carol Meyrowitz has been the CEO and the president of the TJX companies. Ms. Carol has assisted the TJX companies to achieve their intended goals and objectives (Zweigenhaft and Domhoff 227). Her annual compensation amounts to $17.4 million. Born in 1955, Indra Nooyi is among women who have assisted the industry of food and beverage reach the peak of achievement or success. Currently, Indra Nooyin is the CEO and Chairman of the PepsiCo, which is the world’s second biggest business in food and beverage. For the past years, she ranked among the most influential women in the business world. Indra receives an annual compensation of $16.2 million. Lastly, Ellen Killaman has also shown remarkable management skills as the CEO and the President of E, i, du Pont de Nemours the third biggest chemical company in the United States. Over years, Ellen has shaped the company profile by emphasizing on environment protection. In 2011, Forbes ranked her the fourth among the list of the most influential and powerful in the business industry. Annually, Ellen Kullman receives the compensation package of $14.8 million.
With the above facts and information, it is evident that women are making it in the business world by maintaining a profitable and sustainable growth. Indeed, women have been role models in the business world and continues to receive huge CEO compensation in the Fortune 500. As many women emerge in the labour market, they have proved that what men can do so can women do. As mentioned earlier, women CEO in the fortune 500 are receiving huge compensation packages. As a result, this has created a platform for many women in different positions to understand that they have what it takes to succeed and flourish in the business world. The following section seeks to discuss African American and US minorities CEOs.
African American and US Minorities CEO’s
Although most African American and US minorities are taking over in the business industry, the number of American CEO in the Fortune 500 clearly indicates that they are few African Americans and US minorities CEO. In an attempt to answer why there has been a huge difference between the American CEO and African American CEO in the Fortune 500, Lipman and Hall (6) argue that, racial discrimination has been the major cause. However, the American government is diligently working to eradicate racism in the business sector. Despite the obstacles and challenges faced by African American and US minorities, Ursula Burns has been outlined as the incredible CEO and chairman of Xerox. Ursula has played a significant role in the company by maintaining a profitable and sustainable growth for the past years. With her exceptional leadership skills, Ursula Burns has been ranked as the first African American woman to obtain such a position in the fortune 500 companies. Annually, Ursula receives a compensation package of $13.2 million. Based on the facts above, it is evident that women CEOs are receiving equal compensations as those of men CEOs.
There has been contentious issues in regard to the subject “American CEO Compensations in the Fortune 500”. For instance, there have been many questions that remain unanswered such as the cause of the apparent increase in CEO compensation from1970s to 2000s. Finding the answer of this question requires one to fully understand the history of the American CEO compensation in the fortune 500. In great content, this paper has provided an overview of the general trends of American CEO compensations and the recent changes that have emerged. As indicated, there has been an increase rate of the American CEO compensations from 19th century to 21st century. In the modern world, American CEO in the fortune 500 are enjoying huge compensation benefits. Typically, women have emerged in the labour market and for the past decades there have been growth on the number of women’s CEO in the business world. Although there has been differences between the number of American CEO and African American CEO in the market, the American government is diligently working hard to eradicate racism and any form of discrimination.
Lipman, Frederick D, and Hall Steven. Executive Compensation Best Practices. Hoboken, N.J: John Wiley & Sons, 2008. Print.
Previts, Gary J. Research in Accounting Regulation. Greenwich, CT: JAI Press, 2005. Print.
Saha, Mousimi K. “The Top 10 Highest-Paid Women CEOs”. Success Stories From Across the World. 2 April, 2012. Retrieved from http://www.successstories.co.in/the-top-10-highest-paid-women-ceos/
Shin, Taekjin. Working in Corporate America: Dynamics of Pay at Large Corporations, 1992-2005. , 2008. Print.
White, Donald S. Attitudes Related to CEO Compensation. New York: ProQuest , 2008. Print.
Woodruff, Mandi, and Giang Vivian. “10 Female CEOs Who Earn More Than Most Male CEOs in the S&P 500”. Business Insider 12 Aug , 2012. Retrieved from http://www.businessinsider.com/10-female-sp-500-company-ceos-who-make-more-than-men-2012-8?op=1
Zweigenhaft, Richard L, and Domhoff William. The New Ceos: Women, African American, Latino and Asian American Leaders of Fortune 500 Companies. Lanham, Md: Rowman & Littlefield Publishers, 2011. Print.
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