Shareholder Pushback Against CEO Compensation

Investors are drawing a line in the sand when it comes to executive salaries. As corporate leaders take home record-breaking sums, shareholders are increasingly voting against massively inflated CEO compensation packages. This growing financial pushback is directly changing how corporate boards reward their top executives.

The Breaking Point for Executive Pay

For decades, executive compensation has climbed at a rate that vastly outpaces average worker pay. According to research from Equilar, the median pay for a CEO in the Equilar 100 reached $23.7 million in 2023. While executives often receive the bulk of their compensation in stock options and performance bonuses, the sheer size of these packages has caused alarm.

Institutional investors, pension funds, and everyday retail investors are paying closer attention to the disconnect between how a company performs and how much the CEO is paid. If a company’s stock price falls but the CEO still receives a multimillion-dollar bonus, shareholders view this as a major failure in corporate governance. They are now using their voting power to demand that executive pay strictly aligns with the actual financial success of the business.

High-Profile Cases of Investor Revolt

The trend of rejecting CEO pay is not limited to struggling companies. Some of the most valuable and recognizable brands in the world have faced severe backlash from their own investors.

Apple

In 2022, Apple CEO Tim Cook received a compensation package valued at $99.4 million. While Apple is highly successful, only 64% of shareholders voted in favor of this package. In the corporate world, any approval rating below 80% is considered a massive reprimand. Recognizing the discontent, Apple’s board and Cook adjusted his pay. For 2023, Cook requested a pay cut, bringing his target compensation down by 40% to $49 million.

Netflix

In June 2023, Netflix shareholders directly rejected the compensation packages for executives, including co-CEOs Ted Sarandos and Greg Peters. Sarandos was slated to receive up to $40 million. The vote took place during the Writers Guild of America strikes. The union actively urged investors to vote against the packages, arguing it was inappropriate to hand out massive executive bonuses while refusing to meet the financial demands of the writers who create the platform’s content.

Tesla

Perhaps the most famous recent example surrounds Elon Musk and his $56 billion pay package at Tesla. A Delaware judge voided the historic compensation plan in early 2024 after a shareholder lawsuit claimed the board of directors was too conflicted to fairly negotiate the deal. While Tesla shareholders later voted to reinstate the package in June 2024, the intense legal battle and public debate highlighted a fierce resistance to unchecked corporate payouts.

How "Say on Pay" Actually Works

Shareholders express their frustration through a mechanism known as “Say on Pay.” This was introduced by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The law requires public companies to give their shareholders a regular vote to approve or reject the compensation of the highest-paid executives. Companies must hold this vote at least once every three years, though most major corporations choose to hold it annually.

When you buy stock in a public company, you receive a proxy ballot ahead of the annual shareholder meeting. One of the items on that ballot is the executive compensation plan. You can vote for, against, or abstain.

The Power of Proxy Advisory Firms

Individual investors rarely read the hundreds of pages in a corporate proxy statement. Instead, large institutional investors rely on proxy advisory firms to guide their voting decisions. Two firms dominate this market: Institutional Shareholder Services (ISS) and Glass Lewis.

These firms analyze the complex formulas boards use to calculate CEO pay. If ISS or Glass Lewis finds that a CEO is getting rich while shareholders are losing money, they will issue a recommendation to vote against the pay package. When these advisory firms recommend a “no” vote, it is highly common for shareholder support to drop significantly, often resulting in a failed Say on Pay vote.

Red Flags That Trigger a "No" Vote

Shareholders and proxy advisors look for specific warning signs when reviewing executive pay plans.

  • Misaligned Metrics: Boards sometimes base CEO bonuses on metrics that do not reflect true company health, like adjusted earnings that ignore massive business expenses.
  • Moving the Goalposts: If a company fails to meet its financial targets, a board might lower the targets at the end of the year so the CEO still gets a bonus. Investors heavily penalize this practice.
  • Excessive Retention Awards: Boards sometimes grant sudden, massive stock awards simply to keep a CEO from leaving the company.
  • Golden Parachutes: Shareholders frequently vote against massive severance packages given to CEOs who are fired for poor performance.

What Happens When Shareholders Vote No?

A Say on Pay vote is non-binding. Legally, a board of directors does not have to cancel the CEO’s bonus or rewrite the contract if the vote fails.

However, ignoring a failed shareholder vote is incredibly dangerous for a board of directors. If a board ignores the investors, shareholders will usually vote to fire the members of the compensation committee at the next annual meeting.

To avoid losing their jobs, directors typically take immediate action after a failed vote. They will hire independent compensation consultants, hold meetings with their largest investors to hear their grievances, and restructure the CEO’s pay package for the following year to heavily tie the money to strict performance goals.

Frequently Asked Questions

What is a Say on Pay vote? A Say on Pay vote is a ballot measure that allows shareholders of a public company to vote on the compensation packages of top executives, including the CEO.

Is a shareholder vote on CEO pay legally binding? No, the vote is advisory. The board of directors is not legally required to alter the executive’s pay based on the vote. However, boards usually make changes to avoid angering major investors and risking their own board seats.

Why is CEO pay so high? Most of a modern CEO’s compensation comes in the form of stock options and stock awards rather than a base salary. As the stock market has grown significantly over the last decade, the value of those stock awards has skyrocketed, leading to massive total compensation numbers.