Your pay raise this year: 3%, but the CEO's? 12.7%

CEO cuts own salary to give employees a raise
CEO cuts own salary to give employees a raise

Not only is the boss getting paid more than you, he got a bigger raise, too.

Total median CEO pay increased 12.7 percent over the past year, according to an analysis from ISS Corporate Solutions, a provider of compensation and governance tools. The average, including changes in pension values, was more than $6.4 million, versus about $5.5 million the previous year. Even excluding increases in the value of executive pensions, the median pay increase was 7.2 percent.

To compare, the average employee's raise in base pay is expected to be 3 percent this year, according to a 2014 study from Mercer. The median weekly wage for full-time workers was $796 in the fourth quarter of 2014, according to the latest Bureau of Labor Statistics report, which works out to $41,392 per year.

That means the median CEO raise last year was almost 22 times the median annual income of full-time workers. (Tweet this.)

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Granted, the data represents a small slice of chief executives. ISS Corporate Solutions' assessment is based on 791 of the Russell 3000 companies; those that had reported their financials by April 13, 2015, and where the CEO had tenure of at least two years and had a pay increase in fiscal year 2014. (Of the 1,211 companies where the CEO had two or more years of tenure, 420 did not have a pay increase.)

"While the principal driver underlying this year's increases is changes in pension value, which account for about one-half of the total year-over-year jump, other factors continue to influence executive compensation," John Roe, head of advisory at ISS Corporate Solutions, said in a statement. Stock award values were up 11.9 percent, he said, stemming from strong 2013 performance.

It's a case of a rising tide lifting all boats. "The most relevant factor is the stock market," said John Challenger, chief executive of outplacement firm Challenger, Gray & Christmas. In a strong job market, CEOs have a greater portion of their compensation tied to how well the company performed in the market, he said—and the Russell 3000 reported one-year total returns of 14.12 percent.

"It will not last forever," Challenger said. As the U.S. economy approaches full employment, the companies may start to underperform, ending the run of substantial raises and creating more CEO turnover, he said.

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Connecticut-based chief executives saw the largest median pay jump, at 38.7 percent, according to the ISS Corporate Solutions report. Other big hikes among metro areas with at least 20 corporate filers included San Francisco (19.5 percent) and Washington, D.C. (15.4 percent). The smallest hikes, ISS Corporate Solutions found, came from CEOs in Denver (2.3 percent) and Chicago (3 percent). And New York? Close to national figures, with a median increase of 12.3 percent.

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At least one chief executive is bucking the trend. Dan Price, founder of credit card processor Gravity Payments, Monday that over the next three years he will raise the minimum company salary to $70,000. Price said he would pay for the wage increases by cutting his own salary from $1 million down to $70,000, and using as much as 80 percent of the company's anticipated profit this year.