Profile of a Modern CEO

Part
01
of two
Part
01

Evolution of CEOs (Part 1)

The role and characteristics of the CEO have changed dramatically since the 1990s, where e-commerce was beginning to take off and more leaders ditched the traditional closed-door with a secretary for a more open-door approach. Now, CEOs are not only taking a more open-door approach, but they're also taking a more open-plan approach, being available 24/7 and discussing openly with employees how they can all make the company better. More of these changes are discussed in greater detail below.

THE MODERN CEO

  • Much of the change that we're seeing today happened in the 90s when e-commerce began to take off. These CEOs developed different skills, mindsets, and professional certifications than their predecessors, which made their companies ultimately win out against more traditional retail companies. Customer experience is where many CEOs have shifted their attention to, and online retail companies such as Amazon were pioneers with this.
  • CEOs are now becoming more diverse in terms of racial, religious, gender, national, and sexual demographics. As more governments and society demands more inclusion of minorities and other groups, the typical face of the older white male CEO is fading and becoming more diverse.
  • The modern CEO gets people to think and not just to do their jobs. The modern CEO makes it safe for people to speak up and contribute. Modern CEOs also lead by example, in other words, being the change that they want to see in others.
  • Some fundamental characteristics of a good CEO remain the same, such as the characteristics of being visionary, strategic, flexible, optimistic, and purposeful. The CEO has always been the one to want to drive radical change more than the employees. The difference is that these traits are more adapted to modern society by being less strident, more collaborative, more active, and less static.

CHANGE IN ACCOUNTABILITY

  • Because of the rise of shareholder activism, modern CEOs have less autonomy to do anything that they want. Boards with increased power and other stakeholders such as shareholders, staff, clients, and the media are holding a microscope to modern CEOs, even though CEOs can choose which stakeholder to be beholden to.
  • Social media has put more pressure on CEOs to be more cognizant of their actions.

CHANGE IN HOW THEY VIEW THEIR ROLE

CULTURE AND SOCIAL RESPONSIBILITY

  • According to the 2017 Edelman Trust Barometer, the credibility and trust of chief executives have dropped by 12 points to its lowest ever at 37%. Respondents often mention some executives not paying attention to the culture of trust that a modern business needs to have as a large reason for that.
  • Companies over the last 20 years have adopted a shift towards corporate social responsibility, hence CEOs and other leaders have to ensure that they influence the culture of ethics, transparency, and honesty from the top down. CEOs now have to provide measurable results in how they are engaging and uplifting the communities that they are in.

INCREASED EMBRACE OF CHANGING LANDSCAPES

  • CEOs 20 years ago largely overestimated the role that technology would play in society. When comparing CEO sentiment in 1998 about how technology will shape the competition in their industry and CEO sentiment in 2017 about how technology changed competition in the past 20 years, 59% of CEOs in 1998 say there will be a significant impact while only 33% of CEOs in 2017 say there was significant impact. This may seem that CEOs are less optimistic/pessimistic about the role of technology now than they were 20 years ago.
  • CEOs are expected to now embrace and know disruptive technology such as the cloud, big data, automation, and artificial intelligence. In order for CEOs to hold on to their competitive edge for themselves and their companies, they have to adjust their business model to include more cloud and automation. This is why CEOs are now focusing a lot on innovation and how it can influence growth and cost reduction.
  • The modern CEO has the capacity to understand and embrace new technology, especially the technology that their companies run internally. They are able to inspire their employees and have agile decision-making skills.

VIEWS OF THE WORLD / BUSINESS

  • Due to globalization and the internet, CEOs are looking wider for talent than just in their locale.
  • As CEOs start to trend younger, they are starting to ask for more of themselves and their employees and seek to define why they do the things they do. When they see the meaning behind their work, they do more selfless and sacrificial things, such as forgoing bonuses and salary to fund business ventures or certain parts of the business. They want more than just recognition for their work, and they seek more opportunities to learn and better themselves.
  • Over the past 20 years, CEOs have witnessed a lot of change and upheavals because of globalization and technology. The dream of globalization was to unite the world, but CEOs have consistently believed that they will always work in a world where they will have to navigate a multitude of beliefs, value systems, laws and liberties, and banking systems.
  • In the past, CEOs were more optimistic in the concept of globalization, and they saw many opportunities in countries such as India and China. Now, CEOs mostly say that globalization has not leveled the field as promised and that the changing and slow-moving politics in India and continued restrictions in China make them less favorable now than they were 20 years ago. Now CEOs look to already-developed countries such as the US and countries in Europe for new business ventures.
  • Despite their outlook on the world, overall, CEOs are much more optimistic about the world and their businesses than they were 20 years so. In 1998, only 33% of CEOs were confident in their business' 3-year revenue prospects, while in 2017, 51% of CEOs were optimistic about how their companies will perform over 3 years.

Part
02
of two
Part
02

Evolution of CEOs (Part 2)

The Average age of the current CEO is 57 yrs. This has evolved from the average age of 45 years in 2012. The average income of the modern CEO is $158,850 when compared to the $4.2 million of the 1990s, and a peak increase in compensation of $20 million in the year 2000. The insights for the increase in the average age of the current CEO and the evolution of pay scales have been detailed in the next section.

Modern CEO's Average Age in Comparison with CEO's Age 20-30 Years Ago

  • The current average age for a CEO across industries is 58, with the oldest average CEO age in financial services being 60, and the youngest in the technology sector is 55. The average age of the CEO of S&P 500 companies rose by 3% between 2004 and 2014 to 56.9 today. This figure is close to a Fortune analysis conducted in early December 2018 of Fortune 500 CEOs, which showed the average age of a Fortune 500 CEO as 57.
  • The median age of a CEO as per Fortune 100 CEO Statistics of 2017 is 57. According to research from Crist Kolder, a Chicago-based executive search firm, the average age of new CEOs at the US’s biggest companies has increased since 2012, climbing from 45 years old to 50 years old for CEOs in 2014. The study looked at 673 companies in the Fortune 500 and S&P 500. The increasing age of new executives is, in part, a reflection of their new responsibilities, introduced in part by the financial reforms in the Dodd-Frank Act of 2010. Among other new regulations, CEOs are now personally liable for any wrongdoing by their subordinates, hence CEO's with relatively more experience and judgment are considered, many being older.
  • As per a survey by Delaware management consultancy Booz Allen Hamilton, of the 2,500 largest publicly traded corporations, CEOs in the United States are entering offices at younger ages. In 1995 the average starting age of a CEO was 50.4 years, and in 2001 it dropped down to 48.8. The age-restriction policies were originally put in place in the 90s when there was far less oversight from directors over the CEO’s performance. Over the past 20 years, corporate governance has been strengthened and completely transformed. The need for these policies has declined, which has increased the tenure of the CEOs resulting in an older average age of the current CEOs.

Evolution of Modern CEO's Average Income in Comparison with CEO's Average Income 20-30 yrs ago

  • According to the USA Payscale Report, the CEO's average salary is $158,850. In 2016, the CEOs of the top 350 U.S. firms earned on average $15.6 million. The average CEO compensation was $15.2 million in 2013, using a comprehensive measure of CEO pay that covers CEOs of the top 350 U.S. firms. In comparison with the Current average and CEO compensation of 15.6 million in 2016, the average CEO compensation in the 1990s, 30 yrs ago, was $4.2 million as per an article by the Economy Policy Institute.
  • The CEO pay peaked at around $20 million in 2000, a growth of 1,279% from 1978. The fall in the stock market in the early 2000s led to a substantial reduction of CEO compensation, but by 2007, when the stock market had mostly recovered, CEO compensation returned close to its 2000 level. The financial crisis in 2008 and the accompanying stock market tumble pushed CEO compensation down by 44% by 2009. By 2013, the stock market had recovered and CEO compensation had also made a strong recovery. In 2013, the average CEO compensation was $15.2 million.
  • CEO compensation in 2013 remained below the peak earning years of 2000 and 2007 but remained far above the pay levels of the mid-1990s of $4.2 million. The CEO compensation often grows strongly when the overall stock market rises and individual firm stock values rise along with it. The increase in CEO pay over the past few years reflects improving market conditions driven by macroeconomic developments and a general rise in profitability.
  • For most firms, corporate profits continue to improve, and corporate stock prices are increasing accordingly. Evidence suggests that individual CEOs are not responsible for this broad improvement in profits in the past few years, but they are benefiting from it. CEOs are getting more because of their power to set pay, not because they are more productive or have a special talent or have more education.

Research Strategy:

To compare the current average compensation for the modern CEO, we searched for the average CEO compensation of the 1990s. We found information in the Economy Policy Report which stated that the average of the total CEO Compensation in 1989 was $2.724 million, and the total CEO compensation in 1995 was $5.768 million, which came to $4.246 million and which we averaged to $4.2 million.

We could not find any information regarding the current income expectation of the modern CEOS, nor the same information for 30 years ago, that we could compare it with. We reviewed industry databases, publications, and reports such as Monster, Inc., Tech Crunch, and Fortune, but these sources only mentioned the different components of a CEO Pay scale and how much they realize in compensation in the shares. This did not give any information on the CEO's expectations. We therefore broadened the search criteria to include compensation data for newly hired CEOs offers, but that did not reveal whether it met the CEO's expectations or not.


Sources
Sources

From Part 02
Quotes
  • "A new analysis by Korn Ferry (NYSE:KFY), the preeminent global people and organizational advisory firm, finds that CEOs are the oldest and longest-tenured individuals compared with other prominent C-suite roles."
  • "The average age for a CEO across industries is 58, with the oldest average CEO age 60 in financial services and the youngest 55 in the technology sector."
Quotes
  • "According to a report from the Economic Policy Institute, the average CEO pay is 271 times the nearly $58,000 annual average pay of the typical American worker."
  • "Although the 271:1 ratio is high, it’s still not as high as in previous years. In 2015, CEOs made 286 times the salary of a typical worker and 299 times more in 2014. Compare that to 1978, when CEO earnings were roughly 30 times the typical worker’s salary."
  • "CEOs are getting more because of their power to set pay, not because they are more productive or have a special talent or have more education."
  • "In 2016, the CEOs of the top 350 U.S. firms earned on average $15.6 million."
Quotes
  • "According to research from Crist Kolder, a Chicago-based executive search firm, the average age of new CEOs at the US’s biggest companies has increased since 2012, climbing from 45 years old to 50 years old for CEOs. The study looked at 673 companies in the Fortune 500 and S&P 500."
  • "The increasing age of new executives is, in part, a reflection of their new responsibilities, introduced in part by the financial reforms in the Dodd-Frank Act of 2010. Among other new regulations, CEOs and are now personally liable for any wrongdoing by their subordinates, putting a greater premium on experience and judgment."
Quotes
  • "The average age of a CEO of S&P 500 companies rose by 3% between 2004 and 2014 to 56.9 today, according to Spencer Stuart. That tracks closely with a Fortune analysis conducted in early December of the current Fortune 500 CEOs that showed the average age of a Fortune 500 CEO as 57."
Quotes
  • "According to a survey by Delaware management consultancy Booz Allen Hamilton of the 2,500 largest publicly traded corporations, CEOs in the United States are entering offices at younger ages. In 1995 the average starting age of a CEO was 50.4 years; in 2001 it dropped down to 48.8."
Quotes
  • "Age-restriction policies were originally put in place when corporate boards were much more insular, often handpicked by the chief executive, and when there was far less oversight from directors over the CEO’s performance."
  • "These bylaws were primarily introduced in the ’90s in response to some empirical evidence of declining performance of CEOs” who stayed in the job for a long time, Tonello said. “Over the past 20 years, corporate governance has been strengthened and completely transformed. The need for these policies has clearly declined.""
Quotes
  • "For the period 1982 through 1988, the average salary and bonus for CEOs of comparable companies was $843,000."
Quotes
  • "Median age at the time of the company's founding 32, Median age now 40"
Quotes
  • "CEO total compensation has skyrocketed, from an average of $1.8 million in 1990 to $10.6 million in 1998, for an increase of 481 percent. "
Quotes
  • "Average CEO compensation was $15.2 million in 2013, using a comprehensive measure of CEO pay that covers CEOs of the top 350 U.S. firms and includes the value of stock options exercised in a given year, up 2.8 percent since 2012 and 21.7 percent since 2010."
  • "From 1978 to 2013, CEO compensation, inflation-adjusted, increased 937 percent, "
Quotes
  • "Average Chief Executive Officer (CEO) Salary $158,850"