CEO compensation at public companies is staggering and always in the spotlight, and BlackRock (BLK) CEO Laurence Fink says CEOs at private companies deserve the same, if not, more attention.
Most conversations about executive pay are about public companies, said Fink at the China Development Forum in Beijing this past weekend, which he found harmful. The head of the world’s largest asset manager believes attacking public companies for compensating CEOs discourages companies from going public, as private firms can avoid tighter public scrutiny.
Fink’s comments follow headlines highlighting the pay of some high-profile CEOs. Last week, shareholders of Tesla (TSLA) approved a $2.6 billion compensation package for CEO Elon Musk if Tesla’s market value rises to $650 billion over the next 10 years. JPMorgan Chase (JPM) CEO Jamie Dimon received $28.3 million in total compensation in 2017, which is 364 times higher than the average pay of JPMorgan employees. While Fink himself received a $25.5 million pay package for 2016.
Fink said he wasn’t defending unjustified high pay, but public companies are usually more transparent and have better procedures in place to adjust CEO pay, if need be. After the financial crisis, investors have more power to scrutinize CEOs’ pay and push boards to better align it with performance, under rules mandated by the Securities and Exchange Commission and Dodd-Frank Act.
Private company CEOs usually earn less
According to an EY research in 2017, the number of public companies in the U.S. has been on a decline since 1996. More scrutiny on CEO pay is one of the contributing factors behind the decrease, but it has more to do with tighter SEC regulations and more alternatives for access to capital.
A CEO at a public company makes 3.4-3.8 times more than a private company CEO of the same size, according to a report published by Chief Executive Research last September. Among companies with revenue of $1 billion-$10 billion, for example, CEOs at private companies have a median total compensation of $1,567,000 while public company CEOs could bring home more than $5 million. The pay gap between executives and employees is under five times at most private firms, much more moderate than public companies.
“There’s more scrutiny and pressure by being a public company CEO. They take higher risk and they’re in that position for a shorter period of time, so they’re being paid more for taking the risk and scrutiny,” Wayne Cooper, managing director at Chief Executive Research told Yahoo Finance.
While private companies are not obligated to disclose their CEO pay, Wayne said many private companies participated in the self-report survey and try to benchmark and compare themselves to other companies to recruit and retain their executives better.
Krystal Hu covers technology and economy for Yahoo Finance. Follow her on Twitter