Size & CEO Pay

Part 2 in series: “What Matters in CEO Pay?”

Size matters. Both company size and CEO pay size matter a lot! While this doesn’t seem like a wild statement, this fact gets tested over and over, most recently with one of the most widely known executives in the world, Elon Musk, and his role as CEO at Tesla. On January 30th, the Delaware Court issued a ruling on Tornetta V Musk that Elon Musk’s $55 billion, 10-year stock-based compensation plan was egregious. They came to that conclusion in part by looking at the magnitude of his compensation plan in relation to what other similarly sized companies paid their CEOs. The Court concluded the 2018 plan was 250x larger than the median of similarly sized peers and 33x larger than the largest CEO award comparison in the same period.  

The relationship between CEO pay and company size has been well vetted for many years through statistical research. However, the metric for determining size is critical.

We analyzed the top 1,500 public companies over the prior five years to draw correlation conclusions. The metrics with the highest correlation between company size and CEO pay are annual assets at 0.72 and annual revenue at 0.70 correlation.

Other metrics have also been studied over time, but research has concluded that the link weakens for metrics such as net income, cash flow, debt, enterprise value, etc. Some people are often surprised that net income doesn’t have a strong correlation to CEO pay, but a deep dive into how much a company’s net income changes year to year sheds light on the weak link.  

Since revenue has one of the highest correlations, we analyzed our set of the top 1,500 public companies over the prior 5 years to conclude that for every 100% gain in revenue, CEO pay grows approximately 32% with slight variances for industry. This analysis is also supported by other independent researchers who have drawn similar conclusions.  

If the correlation between company size (revenue specifically) and CEO pay is well understood, then the next question becomes, how is there such a wise dispersion of CEO compensation, including Mr. Musk’s 2018 $55 billion dollar package?

Stay tuned for our next article in the series: “What Matters in CEO Pay?”. 



About the Headline Graph
Zayla’s headline picture is a graph of the top 1,500 public US company CEO total compensation from 2019-2022 as disclosed in proxy statements v Tesla’s (Elon Musk) $2.4B compensation proxy disclosure in 2019.
Nearly all of this award reflects the performance-based stock option grant value that would vest in twelve performance-based traunches. Due to Tesla’s stock price performance since that time (667% increase), all twelve traunches are now valued at $55B.
However, the Delaware Court rejected this compensation package in January 2024.

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