CEO roles are becoming less financially attractive compared to other C-suite positions.

CEO roles are becoming less financially attractive compared to other C-suite positions.

Why Becoming a CEO is No Longer the Holy Grail: The Changing Dynamics of Corporate Leadership

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Introduction

Becoming a CEO has long been seen as the ultimate achievement in the corporate world. However, recent trends indicate that this may no longer be the case. In fact, some management stars are actively avoiding the CEO position. This shift in attitude can be attributed to a variety of factors, including increased employee empowerment and the growing politicization of leadership roles. But perhaps the most significant and little-noticed factor is money. According to a recent analysis, the compensation of other C-suite executives like the CFO, CHRO, and general counsel has increased at an even higher rate than that of the CEO. This lack of financial incentive is reshaping the aspirations of ambitious professionals in the corporate ladder.

Compensation Catch-up

A comprehensive analysis of compensation data collected by Equilar for CEOs and other C-suite executives at S&P 500 companies reveals an interesting trend. The pay of CFOs, who traditionally rank second in terms of compensation, has risen significantly in comparison to their CEOs. In the past 10 years, among the 10 companies that shared the salaries of both CEO and CFO, the average pay of CFOs increased from 34% to 44% of the CEO’s pay. This trend is evident in companies like Ford Motor Co. and CVS Health, where the CFO’s pay has risen to 43% and 69% of the CEO’s pay, respectively. Similarly, general counsels have also experienced substantial increases in their compensation. At Cardinal Health, Chevron, and McKesson, the general counsel’s pay has almost doubled as a percentage of the CEO’s pay, from an average of 18% to 34%. These trends are not confined to smaller companies but are prevalent in major publicly held companies where CEOs earn millions of dollars annually. Even the traditionally lower-paid CHROs can now earn millions in compensation. This overall narrowing of the pay gap within the C-suite is a positive development in terms of corporate governance and fostering healthy discourse among top executives.

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Job Hopping and Less Scrutiny

Several factors have contributed to the exponential increase in pay for C-suite executives just below the CEO. One major factor is the destigmatization of job hopping, even at the executive level. Moving between organizations or leveraging the possibility of a move has become more accepted and offers a chance to negotiate higher compensation. Additionally, employers try to retain top talent by granting large stock awards that vest over several years. For example, at Apple, the CFO, chief operating officer, and general counsel hold unvested stock awards worth $51 million each. Another contributing factor to the rise in C-suite compensation is the evolving nature of their roles. Positions like the CFO, which used to predominantly focus on accounting, now include broader responsibilities such as operations. The integration of roles and the increasing complexity of business operations have prompted higher compensation for these positions. Furthermore, C-suite members below the CEO often escape public scrutiny, with the focus primarily on the CEO’s pay. This lack of scrutiny allows for more negotiation power and less external pressure on compensation decisions. The ability to avoid controversy and even physical threats, as experienced by many CEOs, adds to the appeal of staying below the radar.

Beyond the Holy Grail

While ambition and aspiration will undoubtedly continue to drive individuals to strive for the CEO position, the changing dynamics of the corporate landscape and the proportional increase in compensation for other top executives are reshaping the traditional career ladder. The financial incentives that once made the CEO role a symbol of success and achievement are no longer as enticing. The rise in compensation for C-suite executives just below the CEO and the narrowing pay gap among top executives reflect a positive shift in corporate governance and a more balanced distribution of rewards. As the job becomes more demanding and politicized, ambitious professionals now have to carefully weigh the costs and benefits of pursuing the top position. With the allure of alternative high-paying roles and the potential for a better work-life balance, the once-sought-after CEO position may no longer be the holy grail it once was.

Methodology

The analysis of compensation data for CEOs and other C-suite executives at S&P 500 companies in 2022 compared with 2012 was compiled by Equilar. The compensation totals for each executive position were extracted from the Summary Compensation Table in each company’s proxy statements. It’s important to note that not all C-suite positions’ pay is included for every company in every year due to SEC reporting requirements. Some companies may also have paid the CEO little or nothing, making comparisons with other C-suite members’ pay irrelevant.