Excessive CEO pay is coming under threat. Workers at large companies are speaking out against big CEO pay raises while investors at roughly two dozen major U.S. companies have rejected generous executive-pay packages in shareholder votes in the past year, balking at the massive pay gaps between chief executives and workers.

The COVID-19 pandemic sent the world into a financial crisis, leaving millions of Americans struggling to make ends meet. But CEOs did quite well during these challenging times. The average chief executive of an S&P 500 company earned $14.5 million last year, up 17.1% from 2020. Some made as much as $200 million in a single year, as company boards gave particularly big grants of stock to leaders navigating businesses through the pandemic.

But not every chief executive has been so fortunate. In May, investors at Intel’s annual shareholder meeting voted against supporting a compensation package for Intel CEO Pat Gelsinger that would have included a payout of as much as $178.6 million. The same month shareholders also vetoed a $52.6 million retention bonus for JPMorgan Chase CEO Jamie Dimon.

The fates of these two shareholder votes are just the latest in a series of declining support for showering C-suite executives with riches. Median investor support for executive bonuses is at its lowest level since these so-called say-on-pay votes became mandatory in 2011, according to ISS Corporate Solutions, and it’s trending that way again for the rest of 2022. Twelve S&P 500 companies have already failed to secure majority support for their say-on-pay proposals this year, with more vote results yet to come.

Investor pushback against CEO pay raises

“I think something noteworthy is going on in terms of investors feeling more emboldened to express their dissatisfaction with these payouts,” says Brian Johnson, an executive director with ISS Corporate Solutions, which researches CEO pay and provides data to corporations.

“Investors are rightly getting frustrated with the excessive pay given to executives,” says Rosanna Weaver, who analyzes executive compensation shareholder proposals for As You Sow, a non-profit shareholder advocacy organization. “We’re seeing a shift in that some shareholders are flat out saying this pay is too much.”

The corporate boards doling out giant one-time awards say there’s a reason for their lavish proposed spending. Coming off a strong year for the stock market, during which the S&P 500 gained 26.9%, companies want to retain their high-performing leaders and reward them for managing through the pandemic. They also say these retention bonuses, often made in the form of stock and worth millions, are designed to motivate executives to work harder amid new challenges, including high inflation and supply-chain disruptions.

But not all shareholders are buying into the philosophy.

Many companies eased performance targets during the Covid-19 pandemic, sparking shareholders to question the practices and metrics used to calculate pay packages, Weaver says. For instance, in 2020, Norwegian Cruise Line Holdings proposed to pay its CEO $36.4 million, including a $2.8 million bonus, even though the company recorded a $4 billion loss for the year. An overwhelming 83% majority of shareholders rejected it.

Historically, it’s rare for companies to get less than 90% support on these votes, Johnson says, but growing scrutiny of compensation practices is part of a broader trend.

“The pandemic shifted public sentiment to at least focus on this issue a bit more as the justice and fairness of it really came to light,” says Melissa Walton, a research associate at As You Sow supporting the Executive Compensation and Say on Climate programs. “Just consider how workers were treated and how much of their pay was at risk due to the pandemic, compared to CEOs getting all this protection.”

Growing worker dissatisfaction

Pent-up anger over the pay gap has been growing for years, but that sentiment might now be tipping over to investors. Across the country, workers are organizing labor unions to fight for greater pay while others quit their jobs to find better pay elsewhere. This “Great Resignation” of workers saw more than 4 million quits during April 2021 alone. Meanwhile, politicians from both parties want to crack down on the imbalance.

Earlier this week, the Institute for Policy Studies issued a report on the 300 publicly traded companies with the lowest median worker pay. Among those companies, the average CEO earned 670 times the annual pay of the average worker in 2021. The highest paid chief executives in IPS’s sample were Amazon CEO Andy Jassy, who made $212.7 million last year (or 6,474 times the $32,855 take-home pay of Amazon’s typical worker); Estee Lauder CEO Fabrizio Freda, whose 2021 compensation was $66.0 million (or 1,965 times more than the company paid its typical employee); and Penn National Gaming CEO Jay Snowden, who received a $65.9 million payout (or 1,942 times the company’s median pay).

But even when regular workers do get a pay raise, it looks minuscule compared to the kinds of bonuses and awards CEOs are getting. “They’re certainly not keeping pace with inflation,” Johnson says. “There’s a disconnect between a CEO getting a 9% raise while the broader population—the rank-and-file employees—likely didn’t get this 9% raise in their paycheck.”

Greater attention to the pay gap from investors could put pressure on companies to increase worker pay, though there is no indication that this is happening. Poor showings in a say-on-pay vote most often prompts a company’s board to remove their compensation committee members or restructure pay packages. This can in turn lead to “peer benchmarking,” when companies begin evaluating their proposed salaries against other companies, Walton says, but might not have large-scale, industry-wide effects on CEO pay.

“Executives traditionally have played a large role in bringing in board members, picking those who are more likely to be polite and acquiescent,” Weaver says. “For a long period of time, there wasn’t enough attention given to the way CEO pay was creeping up.”

But early results of say-on-pay votes indicate that more people are balking at the amount of money CEOs take home.

“Too much of being a CEO has become an entitlement,” says Weaver. “It’s supposed to be performance-based but in reality it’s treated like an entitlement.”