Like other Americans, CEO's are not immune from recessions, although CEO recession pay is still considerably higher then the annual salary of your average American. A recession is defined as a period of economic downturn in which the gross domestic product declines for at least two quarters. High unemployment rates and low consumer spending often go hand-in-hand with a recession. CEO's, as the leader of companies whose products may no longer be in demand due to reduced spending, may face a decline in their substantial incomes during this period.
State of CEO Recession Pay
In order to understand how CEO pay reacts in times of recession, look to the 2008 economic crisis, and the behavior of the companies and CEOs at that time. When the economic crisis hit in late 2008, the World Socialist Web Site reported that the public was outraged to find CEO salaries at record highs, even as their companies spent millions of taxpayer dollars and workers faced the brunt of the stock market crash.
Since the summer of 2009, CEO pay has received scrutiny from people all across the political spectrum and from all walks of life. Rich or poor, conservative or liberal, it seemed as though the world pitted itself against the high-paid executive. How did the economic collapse affect executive pay and just how did top executives cope with this CEO recession pay?
Average Salaries
According to the AFL-CIO's Executive Pay Watch, in 2008, the average salary of a Chief Executive Officer was upwards of $10 million dollars, making their paychecks many times larger than the national median income for a working individual.
- The highest paid CEOs that year made in excess of $100 million
- On the same list of the top 100 highest-paid CEOs, the chief executive officer for the Warner Music Group made the least, a shockingly low salary of only $17.7 million.
Yet when the economy began to dip, some CEOs begged the government for bailout money to save their [Business_Profitability | faltering businesses]. According to Time Magazine, a total of more than $700 billion of taxpayer dollars was paid to save businesses throughout 2008 and 2009. Even this did not stop some CEOs from living the lavish lifestyle to which they'd become so accustomed.
CEO Cutbacks
Although many people remember the "Big Three" automakers flying into Washington in private jets to request additional bailout funds in the summer of 2008, as reported by an ABC News Article, this behavior was not the norm for CEO's during this period of recession. In fact, the CEO of Morgan Stanley, John J. Mack, gave up his bonus for two years in a row amidst the tide of bank failures and tumbling stock market that characterized 2008 and 2009.
Furthermore, according to the Wall Street Journal, CEO pay actually took an 11 percent dip in 2008 in light of the economic recession. This same article reported that, in 2008, CEO pay accounted for $5.7 billion, which averages out to $11 million for each of the 500 executives for the biggest companies in the United States. This followed a 15 percent cut in pay that occurred in 2007. Thus, for the first time since 2001 to 2002, CEO's took a pay cut for two consecutive years.
CEO Bonuses
Many executives who made millions of dollars are paid exorbitantly high bonuses. The economic collapse of 2008 and 2009 did not stop executives from collecting big. The Wall Street Journal article reference above also discussed a prominent executive of a large firm hit hard by the market collapse.
- With a 62 percent dip in the price of company stock, 31 percent of revenues lost, and a net loss of more than a billion dollars for the fiscal year, the CEO of Time Warner was paid one million dollars in cash and stock as an end-of-the-year bonus.
- NYSE executive officer Duncan Neiderauer got $4 million in bonuses, despite the huge market declines.
As it turns out, when factoring in bonuses, median CEO compensation only fell about one percent following the economic collapse. In short, CEO recession pay still seemed generous.
Political Response
During this period, president Obama responded to soaring executive pay by issuing an ultimatum: any executive of a company receiving government bailout money has capped cash compensation at $500,000 until the bailout money is paid back in full. Even bank and healthcare executives are subject to this stipulation.
The question remains, however, as to whether or not this will prevent corporate CEOs from "making" capital. For example, the provision allows chief executive officers to be paid in company stock or other incentives. In companies with a high value on the stock exchange, stock bonuses can still amount to a hefty bonus for a CEO. Just look at the CEO of Oracle, an executive who made only $1 million in salary but whose stock options vested, making him $544 million according to Forbes.com.
