Focus OnIn Depth

Argument of The CEOs salary in Tech Firms

Do CEOs Deserve Their Pay?

On March 31, Yang Yuanqing, chairman and CEO of Lenovo Group, announced in an internal letter that he would voluntarily distribute his 80 million yuan salary and long-term incentive bonus to front-line employees to help them overcome the difficulties caused by factors such as the epidemic. According to the “Beijing Youth Daily”, in the fiscal year 2021, Yang Yuanqing received a salary of 168 million yuan.

Yang Yuanqing
Yang Yuanqing, CEO of Lenovo

This is not the first time Yang Yuanqing has paid out of his own pocket. As early as 2012 and 2013, he set up the “Yuanqing Special Award”, and each gave his own 20 million bonus to nearly 10,000 employees. The attitude of sharing weal and woe with the company has calmed down the whopping salary controversy surrounding him some time ago.

How much CEOs salary in Tech Firms

In the past two years, CEOs of tech companies have increasingly stepped into the spotlight because of high salaries. The economic downturn brought on by the pandemic has even boosted their pay levels to some extent—as tech company stock prices have hit record highs during this period. The “Wall Street Journal” pointed out in a report last year that in 2020, which is plagued by the unemployment of ordinary people, the salary of CEOs has risen sharply compared with previous years. The median salary of CEOs of more than 300 largest listed companies in the United States reached 13.7 million. U.S. dollar on track to hit record high

Apple CEO Tim Cook has one of the highest pay rises in recent years, earning $99 million in compensation last year, 1,477 times that of the average worker. That drew objections from ISS, the largest shareholder proxy advisory firm in the U.S., on the grounds that Cook’s compensation was “significantly larger” than the previous year. In 2020, Cook’s salary totaled $14.77 million.

Chinese CEOs are no different than the United States. Chinese Media TMTPOST compiled a list of CEO salaries in China at the beginning of this year. Gu Hongdi, vice chairman and president of Xpeng Motors, topped the list with an annual salary of 435 million yuan, which was 2.6 times that of Yang Yuanqing last year. Xiaopeng Motors has not yet achieved profitability, a net loss of 4.9 billion yuan last year.

The company later responded that the value of the equity held by Gu was wrongly interpreted as an annual salary, and more than 99.5% of his publicly disclosed salary was equity incentives accumulated over many years, not a year’s income.

Tesla CEO Elon Musk may be the person who has received the most real compensation from the company over the past few years. Although his salary on paper is zero, due to the high equity incentives awarded each year, Forbes believes that Musk’s actual salary in 2020 is as high as $11 billion, more than 50 times the annual salary of the second person.

The trouble caused by the whopping salary of CEOs

Musk was taken to court by a Tesla shareholder over the hefty pay level. The shareholder sued Musk and Tesla’s board of directors in court, saying the latter did not disclose relevant information to shareholders before approving Musk’s compensation plan.

The legal database Plain Site shows that on April 18 this year, the case will be tried in the Justice Court of Delaware, where Tesla is registered. At that time, Tesla’s board of directors will need to be present and defend the matter.

In the past, people were used to CEOs being rewarded for their high performance levels and good governance, which was considered a legitimate and fair business practice. But at a time when the world is becoming more and more turbulent, CEOs have to face more severe scrutiny, not only from business, but also based on the huge income gap and unbalanced group sentiment.

Wage protest

San Diego restaurant offering bonuses for new hires. Source: ABC News

Yang Yuanqing finally understood

Perhaps Yang Yuanqing never thought that one day his salary would become the object of criticism.

He has always been the highest paid group of Chinese listed companies. Forbes once pointed out that he has ranked first in CEO compensation of Chinese listed companies for three consecutive years. In 2013, his annual salary level exceeded 130 million yuan, which was the first time that his annual income exceeded 100 million yuan. Lenovo Group said at the time that due to the outstanding performance of the company in the 2013-2014 fiscal year, the bonus and long-term incentives given to Yang Yuanqing increased significantly. 

After the salary of more than 100 million yuan caused controversy, he once expressed confusion to the outside. It was in 2015, and he responded in an interview with CCTV Finance, “After we acquired IBM, we were confused for a long time, domestic employees were paid very low wages, and our M&A employees were calculated according to the US market standards salary, I can’t get a lower salary than my American employees, subordinates, and executives, this is unreasonable.”

This sentence has been brought up for many years since then, as one of the “criminal evidence” accusing Yang Yuanqing. Last year, Lenovo Group attempted to be listed on the Science and Technology Innovation Board. The executive compensation disclosed in the prospectus once again caused heated discussions. The media took the trouble to point out in the article that “Yang Yuanqing’s salary has reached 1.26 billion yuan in the past ten years.”

Now Yang Yuanqing finally understood. In the company’s internal letter for the new fiscal year, he highlighted the company’s front-line grassroots employees. “In the past two years, they have overcome various difficulties caused by the new crown epidemic and other factors, rain or shine.”

In order to pay tribute to these front-line employees, he decided to distribute the long-term incentive of 80 million yuan awarded to him earlier by the company as a special reward to these colleagues. Before that, the Shanghai Jiaotong University High Performance Computing Center, which he donated 100 million yuan to his alma mater, was officially opened.

In contrast, Cook, who sparked opposition from shareholder agencies, and Musk, who went to court, are less mature in handling such issues.

Do CEOs Deserve Their Pay?

Following the ISS outcry, Apple remained as tough as ever, declining to comment.

Tim Cook is indeed worth the $99 million he’s been given if you look at it over the long term. In the early days of his succession, he was often compared with Apple’s leader Steve Jobs. People criticized him for not being geeky enough, and his innovation was too little. Even the jeans and blue shirt he wore at the press conference were the object of criticism.

Tim Cook
Tim Cook

But the financial figures later said it all. A document released by Apple’s board of directors shows that since Cook became CEO in 2011, Apple has brought returns to shareholders as high as 867% in the ten years. Apple’s market cap has ranged from $1 trillion to $2 trillion, and it topped $3 trillion earlier this year — the first company in the world to reach a market value of $3 trillion.

Musk’s high salary is based on a big gamble. Tesla’s board set him up with an extremely aggressive compensation plan in 2018. His salary level is zero, and he will only be granted equity after leading the company’s market value, revenue and profit to one difficult goal after another award.

This plan was hardly optimistic at the time, and it set the ultimate goal of Tesla’s market value reaching 650 billion US dollars, which was just over 50 billion at the time. If Tesla’s market cap only grows 80% to 90% over the next decade, he’s going to get nothing — even if that’s a decent number. But he is adamant that Tesla will eventually become a trillion-dollar company.

It took him a full two years to complete the first phase of the goal: a market value of more than 100 billion US dollars. But after that, everything changed. Shares of Tesla have surged 689% in 2020, the fastest growth of any company that year.

In 2021, Musk completed the final goal of the compensation plan seven years ahead of schedule. Tesla’s market value exceeded one trillion US dollars, which is higher than the combined market value of all traditional car companies in the United States.

The salary gap between the CEO and staff

The debate over the pay gap between CEOs and rank-and-file staff has been around for a long time. Whether in terms of base numbers or growth rates, CEOs are far ahead of their employees.

At some point, some CEO salaries continue to grow even when the company is in the red. For example, a US cruise company called Norwegian Cruise Line has suffered a loss of US$4 billion in 2020 due to the impact of the epidemic, but its CEO salary has still doubled to US$36.4 million.

This may make most people feel unfair. Two French economists, Xavier Gabaix and Augustin Landier, have conducted research on the compensation of CEOs of large companies. They proposed that the influence of CEOs on enterprise value is usually multiple, and the influence of their behavior will be caused by the internal company. Executed and magnified infinitely. A good CEO can make the company’s profits grow exponentially, compared with the compensation provided to the CEO is negligible.

To be more precise, the CEO and the employee are in two completely different markets, and there is no comparison between them. “It’s welfare, not fairness, that counts,” the two economists argue.

CEO’s Salary package in big tech firms

In order to compete for the best CEOs in the market, companies often offer a complex and expensive salary package. Unlike ordinary employees, the most important part of CEOs’ salary packages is often not salary (they will even refuse salary), but a series of progressive option awards – Tesla’s ten-dollar offer for Musk. The annual compensation plan is the most aggressive of them all.

For example, among the $99 million salary Cook received from apple in 2021, the basic salary accounted for only $3 million, while the equity award amounted to $82.35 million and the non equity award was $12 million. Other salaries included $1.39 million such as security and insurance premiums.

Yang Yuanqing’s salary of over 100 million yuan is also dominated by equity incentives. His basic salary only accounts for 6% of the total salary, and performance bonuses and equity incentives account for 94% of the total salary. For example, in the salary of $21.359 million that Yang Yuanqing received in fiscal year 2013, the base salary was $1.283 million, the performance bonus was $7.159 million, the long-term equity award was $12.647 million, the pension was $128,000, and other benefits were $141,000.

Some CEOs who are founders of their companies themselves refuse to be paid because they often own the vast majority of the company and their wealth growth is firmly tied to the company. Typical cases include Zuckerberg saying that he only receives a salary of 1 dollar, and JD’s Richard Liu also saying that his salary is only 1 yuan – but you should listen to these words, and don’t take them seriously.

In comparison, Cook may be the real “affordable man”. Of the $99 million in compensation he received in 2021, more than $80 million came from an equity incentive 10 years ago.

That was the 1 million shares of restricted stock that the board granted him when he first took over as Apple’s CEO. The only requirement for this gift was that Cook needed to stay in Apple’s CEO position for 10 years.

PiChai, CEO of Google
PiChai, CEO of Google

Compared with Apple’s old rival Google, Cook’s salary also lags behind Google CEO Pichai. As early as 2015, Pichai’s salary was as high as 100 million US dollars, when Cook’s annual salary was only 10.28 million US dollars.

Salary of global listed firms besides the tech industry

If you jump out of the technology industry and look at global listed companies, Cook’s salary will be surpassed by more people. On Bloomberg’s list of the highest-paid corporate executives in the U.S., second after Musk is Mike Pykosz, CEO and co-founder of medical services company Oak Street Health, with an annual salary of $560 million. In addition, Schwarzman, chairman and CEO of Blackstone, will be paid nearly $800 million a year after 2017, and his total compensation in 2021 will be as high as $1.1 billion, far exceeding Cook’s $99 million.

At a time when disputes are often caused by sky-high compensation, and may even be sued by shareholders, perhaps, like Yang Yuanqing, giving up his bonus is also giving up a hot potato.

Angel Zhang

Editor in Chief of FirmKnow.
Back to top button