Even if one doesn't consider environmental, social, governance (ESG) criteria in evaluating companies, it's useful to know which company CEOs are overpaid in comparison to the rest of the company, and in comparison to their peers. What if these CEOs were paid according to shareholder return? In many cases, their pay would be cut. That's according to findings from the sixth annual report, "The 100 Most Overpaid CEOs of the S&P 500: Are Fund Managers Asleep at the Wheel?" published by As You Sow, a nonprofit organization focused on shareholder advocacy. The report's rankings are calculated on the assumption that executive pay should be closely linked to corporate performance. The most overpaid CEOs "each had compensation that was at least $20 million higher than if their pay had been properly aligned with performance. Of these CEOs, one received compensation that was $200 million above what the performance of the company justified, another one was $100 million above what it should have been based on TSR, and two others more than $50 million higher," the report says. Even though the American public recognizes that overpaid CEOs contribute to the drastic income inequality in the U.S., the fact remains that it is still possible to identify 25, even 100 "most overpaid" CEOs. Perhaps someday that list will shrink, as Congress continues to propose bills calling for accountability and other solutions, and as income inequality becomes even starker due to the effects of the coronavirus pandemic. Or not. The voting practices of mutual fund and ETF managers at annual shareholder meetings are one reason why some company CEOs continue to be overpaid, despite public and Congressional outcry, the report suggests. The above slideshow features the 15 most overpaid CEOs, as calculated by the report. Note that some of the CEOs may have moved on from the companies they are identified with in the slideshow.

Methodology

The ranking process used data provided by Institutional Shareholder Services (ISS) and includes the following, according to As You Sow:

  • Employing a statistical regression model to compute what the pay of the CEO would be, assuming their pay is related to cumulative total shareholder return over the previous five years
  • Using that formula to calculate the amount of excess pay a CEO receives
  • Adding to that, data that ranks companies by what percent of company shares were voted against the CEO pay package
  • Examining the pay ratio between a CEO's pay and the median company employee pay, to calculate a company's ranking.
Related: 

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C.J. Marwitz

C.J. Marwitz is a writer and editor.

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