Recently I read a Forbes article about CEO pay, Amazon Has Tough Choices – Closing Charity Programs, Cutting Staff, And Facing CEO Pay Pressure. The article mentioned Apple CEO Tim Cook taking a 40% pay cut in 2021 because of shareholder demands. Amazon may follow suit. Unfortunately, a good bit of charitable giving will be reduced too. Another article said the CEO of Goldman Sachs, David Solomon, took a 30% pay cut in 2022, but still made $25 million.
Most people have no idea how much CEOs of publicly held companies make compared to the average worker. Would you be surprised if they made 50x more? How about 100x more? What if I told you it was 250x? None of those is correct so I hope you’re sitting otherwise you might fall over.
In 1980 a typical CEO made about 42x more than the average American worker. By 1990 that figure had grown to 109x. In 1993, the Fed mandated full disclosure of CEO compensation in an effort to help curb this alarming trend. Unfortunately, the plan backfired. Grab your armrests because, by 2005 the difference between the typical CEO and average American worker’s pay had ballooned to 525x! You read that right, the average CEO was making 525 times what the typical employee was making (source: AFL-CIO). In all fairness, it dipped to a mere 269x in 2010, but it’s back up to 399x as of year-end 2021.
Why did this boomerang effect happen? After all, some of the thinking behind the full disclosure of compensation was to let everyone see how much CEOs and other top executives were earning so stockholders could put the brakes on their incredible income growth.
The Fed’s approach failed in part because of the principle of consensus, sometimes referred to as social proof. This principle of influence alerts us to the reality that we look to the actions of others when making decisions, and our desire to follow the lead of other people is heightened when we’re not 100% sure what we should be doing.
Prior to the federal mandate about compensation disclosure, it was an educated guess as to what the market was paying other CEOs in a given industry. Once it became public knowledge something happened similar to what we see with star athletes. Salaries for athletes have skyrocketed because once an athlete knows what other top performers make, their sports agent begins to negotiate an even bigger deal for their athlete. It’s a “keep up with the Jones’” mentality and so it’s been with CEO compensation.
Don’t worry about Tim Cook, Amazon CEO Andy Jassy, Goldman’s David Solomon, or any other CEOs that take a pay hit. If they only make 200x or 300x what an average person makes they’ll make ends meet.
Brian Ahearn is the Chief Influence Officer at Influence PEOPLE. An author, TEDx speaker, international trainer, coach, and consultant, Brian helps clients apply influence in everyday situations to boost results.
As one of only a dozen Cialdini Method Certified Trainers (CMCT) in the world, Brian was personally trained by Robert Cialdini, Ph.D., the most cited living social psychologist on the science of ethical influence.
Brian’s first book, Influence PEOPLE, was named one of the 100 Best Influence Books of All Time by Book Authority. His follow-up, Persuasive Selling for Relationship Driven Insurance Agents, was an Amazon new release bestseller. His latest book, The Influencer: Secrets to Success and Happiness, is a business parable designed to teach you how to apply influence concepts at home and the office.
Brian’s LinkedIn courses on persuasive selling and coaching have been viewed by more than 500,000 people around the world!