Here’s how executive and CEO compensation works

Core Insights - CEO pay at top American companies reached a median of $16.8 million in 2024, marking a 7.4% increase from the previous year, while average worker pay rose by less than 4%, insufficient to keep pace with inflation [1][2] Executive Compensation Structure - Executive pay is typically structured with multiple components, including performance-based pay linked to company stock performance, base salary, bonuses, stock awards, stock options, and perks [4][7] - Compensation decisions are made by a board compensation committee, often with external consultant support and some input from shareholders [4] Historical Trends - There is a significant and widening gap between executive pay and worker pay, with CEO-to-worker compensation ratios increasing from 21-to-1 in 1965 to 290-to-1 in 2023 [7] - From 1978 to 2023, CEO pay increased by 1,085%, while typical worker compensation only rose by 24% [7] Comparative Metrics - CEO compensation has outpaced that of other high earners, such as senior lawyers and investment bankers, indicating a unique trend where CEO pay has grown faster than the top 0.1% of wage earners [8][9] - The compensation structures for CEOs have increasingly been tied to equity grants and performance shares, allowing for exponential growth when stock prices rise, unlike other high-income professionals whose earnings have tracked broader economic trends [9]