3 Problems With How Executives Get Paid

Source: Thinkstock

Source: Thinkstock

In what amounts to a rare instance these days, shareholders of burrito behemoth Chipotle (NYSE:CMG) voted against giving the company’s two standing CEOs — Steve Ells and Montgomery Moran — huge compensation packages. In 2013, both executives took home monster pay days over more than $24 million. However, as Upstart Business Journals explores, perhaps the message sent from Chipotle’s shareholder base to its CEOs is that their pay level should be more on par with that of a manager.

This is a message that hasn’t gone mainstream, at least not yet. One of the primary factors behind the growing income gap is the tremendous gains in income secured by members of the nation’s wealthiest classes. Many members of the top classes happen to be high-level and powerful executives at many of the world’s largest multi-national corporations, a healthy portion of which are based in the United States. The Wall Street Journal even points out that even though the economy has technically recovered and there have been large economic gains since 2009, the lion’s share, 95 percent, has gone to the nation’s top one percent.

Over the past two decades, executive pay has shot through the roof. There have been many reasons behind the growth spurt, but one of the primary factors has been a trend of restructuring executive compensation. A study from the Economic Policy Institute shows that CEO pay has risen 725 percent since 1978, 127 times faster than employee pay over the same period, according to Think Progress.

What exactly has changed? As base salary has more or less stayed the same, the biggest difference has been huge increases in stock, bonuses, and options. These changes have led to executives have insanely-inflated total compensation packages and have primarily fueled increasing wealth gaps. How do these differences cause problems?

Read on on to see the three main problems with the new trends in CEO compensation.