Economic Commentary Everyday Economics July 22, 2015 LINDSEY M. PIEGZA CHIEF ECONOMIST (312) 454-3873 PIEGZAL@STIFEL.COM CEO Salaries on the Rise According to a recent report from the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), S&P 500 company CEOs made an average salary package of $22.6M in 2014, up nearly $2M from the previous year. Alternatively, according to the Bureau of Labor Statistics (BLS), the average worker in the US made only $36.1k in 2014. In other words, CEO pay was, on average, more than 370 times higher than the income of the average American worker. Additionally, CEO salary earnings are up nearly 16% over the last year, while wages for the average American household remain lackluster, growing at a stagnant 2% pace over the last five years. Not only is the nominal income gap widening between America’s executive leaders and the typical worker, but the growth rate continues to exacerbate the earnings spread. According to CNBC news, the highest paid US CEO in 2014 was David Zaslav of Discovery Communications, earning a total salary of $156M. The second highest reported CEO salary was paid to Michael Fries of Liberty Global, at $111M. The highest paid female CEO was Yahoo’s Marissa Mayer, with a compensation package totaling $42.1M in 2014. Rank 1 2 3 4 5 Company Discovery Communications Liberty Global Gamco Microsoft GoPro CEO David Zaslav Michael Fries Mario Gabelli Satya Nadella Nicholas Woodman 2014 Salary $156M $111M $88M $84M $77M Most executive pay packages are a combination of direct income and other investment alternatives. In fact, according to the WSJ, more than half of CEO pay in 2014 was in the form of stock and stock options. Furthermore, pensions and other “perks” made up an additional 9% of the average Please see the last page of this report for important disclosures and disclaimers. th  2015 Stifel, Nicolaus & Company, Incorporated  One South Street, 15 Floor  Baltimore, MD 21202  Member NYSE  Member SIPC  888.290.1762 Economic Commentary Everyday Economics July 22, 2015 executive compensation package. While still considered part of earnings, non-cash payments comprised 66% of total executive pay with cash taking a minority share at 34%. Of course, 34% of $22.6M is still $7.7M, or nearly 200 times greater than the average American worker’s pay. The discrepancy between both the level of pay and the growth rate in CEO pay relative to the earnings of the average American is not a new issue. In fact, the divergence in pay has been growing steadily for the past three decades. The ratio of CEO earnings to average worker pay in 1980 was only 42:1. Today, that ratio stands at a whopping 373 to 1. While some analysts are quick to blame greed as the reason behind the widening income gap, others have pointed to the lack of business investment and high-paying job growth. In other words, there are fewer opportunities for workers on the rungs of the labor ladder below the top executive. The net business startup rate (new businesses less closed firms) continues to trend negative as it has for the last six years. Government intervention to arrest the growing divide between regular citizens and top level CEOs has been minimal. For some, this is a welcome conclusion as government is never the engine of growth and thus, should not interfere in the private sector. However, others contend the government should intervene and “level the playing field.” Currently, the Securities and Exchange Commission is considering a proposal that would require companies to justify executive compensation and compare it to the company’s stock performance. Of course “justification” does not equate to concrete or equitable regulation. -Stifel Economics th Page 2  2015 Stifel, Nicolaus & Company, Incorporated  One South Street, 15 Floor  Baltimore, MD 21202  Member NYSE  Member SIPC  888.290.1762 Economic Commentary Everyday Economics July 22, 2015 This material is prepared by the Fixed Income Strategy Department of Stifel Nicolaus & Co (“Stifel”). This material is for informational purposes only and is not an offer or solicitation to purchase or sell any security or instrument or to participate in any trading strategy discussed herein. The information contained is taken from sources believed to be reliable, but is not guaranteed by Stifel as to accuracy or completeness. The opinions expressed are those of the Fixed Income Strategy Department and may differ from those of the Fixed Income Research Department or other departments that produce similar material and are current as of the date of this publication and are subject to change without notice. Past performance is not necessarily a guide to future performance. Stifel does not provide accounting; tax or legal advice and clients are advised to consult with their accounting, tax or legal advisors prior to making any investment decision. Additional Information Available Upon Request. Stifel Nicolaus & Co is a broker-dealer registered with the United States Securities and Exchange Commission and is a member FINRA, NYSE & SIPC. © 2015 ADDITIONAL INFORMATION AVAILABLE UPON REQUEST th Page 3  2015 Stifel, Nicolaus & Company, Incorporated  One South Street, 15 Floor  Baltimore, MD 21202  Member NYSE  Member SIPC  888.290.1762