October 25, 2019

CNN Business – Why CEOs are paid so much

By Jeanne Sahadi

There is no shortage of headlines about CEOs getting paid seriously big money. Last week, for instance, it was revealed that Microsoft CEO Satya Nadella got a 66% raise, bringing his total compensation to nearly $43 million. And this summer Abigail Disney, an heir to the Disney fortune, publicly criticized CEO Bob Iger’s $66 million pay package, which is more than 1,000 times the median pay of Disney employees.

While many CEOs are not as generously compensated as Nadella and Iger, they do pretty well. In 2018, the median total compensation for S&P 500 CEOs rose 4% to $12.3 million, according to the latest figures from the Conference Board. CEOs at the high end of that group were paid more than $22 million, while those at the low end were paid roughly $6 million.

But why do they make so much? And why might one CEO make millions more than another?

One major consideration that goes into how much a CEO should be paid is what other companies are paying. Compensation committees benchmark CEO pay against a self-selected peer group — often 12 to 20 companies that may be of similar size and complexity, and have similar business models, according to Robin Ferracone, CEO of Farient Advisors, an executive compensation consulting firm.

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