Executive Compensation: How Much is Too Much?

When it comes to CEO pay, almost everyone has an opinion on how much is ‘too much’. Interestingly, however, many of those views are formed without direct experience of how executive compensation is actually structured, evaluated, or approved.

It’s a common belief that CEOs are ‘grossly overpaid’, but the data offers useful context. In 2024, the median total compensation for CEOs was $17 million. Less than 10% of that (under $1.7 million) was base salary. The vast majority was performance-based. In the same year, average shareholder returns rose by 26% compared to 2023, while the average tenure of a public company CEO remained under five years. In other words, CEO pay is not only heavily weighted toward performance, but also earned within relatively short timeframes.

To put this into perspective, consider compensation in other high-profile professions. The average Premier League footballer earns around £4.5 million per year, MLB players average roughly $5 million, and NBA players nearly $12 million. Network news anchors can earn between $6 million and $15 million, while top actors command far more. These roles are highly visible and well-compensated, yet they typically do not carry the same level of accountability for long-term organizational performance, shareholder value, or workforce stability. Importantly, much of their pay is not tied to performance in the same way CEO compensation is.

There is also a significant difference in how pay is determined. In most of these professions, compensation decisions are made within relatively small, closed groups. By contrast, executive compensation, particularly in publicly traded companies, is governed by a structured and transparent process.

Typically, a Compensation Committee evaluates CEO pay and makes recommendations to the full Board. This process involves extensive analysis, including benchmarking against peer organizations, assessing both company and individual performance, and ensuring alignment with the company’s stated compensation philosophy. Public companies must also disclose these practices annually, and shareholders are given a non-binding vote on executive pay. While advisory, a negative vote can carry real consequences, including challenges to board member re-election.

At its core, a CEO compensation package usually includes three components: base salary (fixed pay), annual incentives (short-term performance bonuses), and long-term incentives (multi-year, performance-linked rewards). The foundation of any effective approach is a clearly defined compensation philosophy. This outlines where the company intends to position itself within the market, who its peer group is, how much pay should be performance-based, and how compensation is balanced between short- and long-term outcomes.

From there, companies benchmark externally to remain competitive and ensure they can attract and retain talent. Incentive plans are carefully designed so that performance metrics align with value creation. Crucially, targets are set with sufficient ‘stretch’ to ensure that above-target payouts are only achieved through genuinely strong performance. Committees also examine the ‘leverage’ within these plans (how sharply pay increases or decreases in relation to performance).

For example, many plans are structured so that performance below 80% of target yields no payout, while maximum payouts for exceptional performance typically range from 150% to 200% of target. This ensures that reward is meaningfully tied to results.

Public discussions of CEO pay can sometimes overlook these nuances. Headlines may focus on large figures without explaining how or when that compensation was earned. In one example, a CEO was reported to have earned $18 million in a year when company performance appeared modest. In reality, this figure reflected the exercise of stock options granted many years earlier. Over that period, the company’s stock had increased more than tenfold. The CEO had deferred pay for years and ultimately realized gains only because long-term shareholder value had been created. Even then, much of the value remained invested in the business.

Cases like this are not typical, but they highlight how easily compensation can be misinterpreted when taken out of context.

Ultimately, the question of ‘how much is too much’ depends less on the headline number and more on alignment. How does a CEO’s pay compare to peers? How much of it is contingent on performance? And, most importantly, does the level of reward reflect the results delivered?

Executive compensation is too low if it fails to reward sustained outperformance and risks losing high-performing leaders. Conversely, it is too high when pay outcomes exceed what is justified by company performance, especially relative to the market and peer organizations.

Viewed through this lens, CEO compensation is not simply about the amount paid, but about the integrity of the system behind it. When designed and governed effectively, it can be a powerful mechanism for aligning leadership, performance, and long-term value creation.

If you would like to discuss the services we offer in helping to manage or determine executive compensation, please don’t hesitate to get in touch with me at chris@orgshakers.com