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We all know that CEOs get paid a lot of money. American CEOs seem to be better paid than their counterparts in Europe or Asia. The New York Times had commissioned Equilar Inc., the executive compensation analysis firm, to analyse the compensation of top 200 executives in public companies in the US with at least $1 billion in revenue. The research found that the median 2012 pay package came in at $15.1 million — a leap of 16 per cent from 2011. The findings are interesting as in 2012 the research registered only a 2.8 per cent increase over 2011.  

The situation was no different in 2009 – even at the height of the recession that crippled economies worldwide. During the downturn, the fat cats at Wall Street were still paid millions of dollars even though a majority of people were struggling for jobs and trying to make ends meet. Apart from higher salaries and perks, top company bosses got bonuses and stocks.

By 2011, CEOs made enormous gains on stock and options they were granted as part of pay packages in 2009 and 2010. Two-thirds got bonuses bigger than the ones they received in 2009, with some payouts more than three times as big, the Daily Mail reported.

The practice was established to give shareholders a non-binding vote on proposed compensation packages in an effort to curb surging CEO pay. Shareholders at 92 per cent of US companies as of June 2013 pass say-on-pay with more than 70 per cent approval, according to data compiled by Semler Brossy Consulting Group in Los Angeles.

“The headline this year is that companies are trying harder to explain their executive compensation programs to their largest institutional investors,” said Charlie Tharp, chief executive of the Center on Executive Compensation, told Washington Post in an interview. Center on Executive Compensation is a group established by an association of human resource directors. “There have been a continued trend toward stock awards and performance bonuses, and a decrease in options,” he said.

Shareholders don’t seem to be too bothered about the fact that CEOs have fat paychecks. “There is no evidence that shareholders are overly concerned with the levels of pay (with the exception of labor unions, who have their own motives), but rather care about tying pay more closely to performance,” said Kevin Murphy, a finance professor at the University of Southern California Marshall School of Business, in an interview. In fact, most of the companies are now moving towards a stock-based compensation package.

Currently, the stocks and options are the golden eggs for a CEO. Take a load of this: Zynga’s newly-appointed CEO Don Mattrick will receive $25 million in restricted stock vesting over three years, and additional restricted shares and options valued at $15 million besides the salary of $1 million and a joining bonus of $5 million.

In 2014, Mattrick is eligible for a bonus of as much as $5 million and a performance-based equity grant valued at $7 million, Bloomberg reported. Yahoo!’s Marissa Mayer, America’s highest paid female CEO, made $36.6 million last year comprising $30 million in stock and options.

The compensation structure of Orcale’s Lawrence J. Ellison, the highest paid CEO in the world, reads like this: Salary: $1; Bonus: $3.9 million; Perks: $1.5 million; Options: $90 million. So is CEO pay linked to performance? It would not seem so – A Business Standard reported that many CEOs received over 30 per cent pay hikes in 2011-12 — the period during which the net profits of the companies they run went up by an average five to 10 per cent.

CEO pay is far out of proportion to the value executives add to their companies and the economy, say Josh Bivens and Lawrence Mishel, economists at the Economic Policy Institute, a left-leaning think tank. After pressure from corporate governance activists, who were unhappy with the big payouts, many companies have revamped the compensation structures.

In India, the average wage disparity between the CEOs and entry-level employees is the highest in the world. According to a survey by the global human resource outsourcing firm Aon Hewitt, the Indian CEO typically earns 600 times more than a beginner whereas in the US, Europe and China, CEOs make between 200 to 300 times more than an entry-level employee’s salary.

Another study by Institutional Investor Advisory Services India Limited (IiAS) shows that the average CEO renumeration for BSE 500 companies has gone up in the last four years by 25 per cent. Most of these companies have a two-part remuneration structure – fixed and variable. While the public sector executives of the BSE 100 companies were paid an average remuneration of Rs 51 lakh FY11, their private sector peers were paid Rs 6.89 crore.

Infosys founder and Executive Chairman N.R. Narayana Murthy set a precedent when he decided to take just Re 1 as salary. On the global side, Hewlett Packard's Meg Whitman, Google's Larry Page, Facebook's Mark Zuckerberg and Fossil CEO Kosta Kartsotis are among the corner room biggies who have, of late, settled for $1 salary.

But, they would all make up the loss in another form – stocks. A Times of India report said that Murthy earned a dividend of nearly Rs 10 crore in FY 12 from his 0.41 per cent stake. Murthy and his team's Re 1 salary will not attract any taxes. They will not have to pay taxes on dividend income too as dividends are tax free in the hands of the shareholders.