It's not the shareholders, and it's not the company board members — it's the chairman of the board.
Second only to a company's annual revenue, who the company board chairman is plays the biggest role in determining CEO pay, according to The Wall Street Journal.
The finding is from a recent report by advisory firm Institutional Shareholder Services. ISS looked at the annual pay of 484 S&P 500 company CEOs over the course of the past three years. All of the companies analyzed maintained the same board structure for at least two of the past three fiscal years.
Here are three things to know about the report.
1. CEOs of companies run by an independent board chairman are paid 20 percent less than their peers. These CEOs made an average of $2.9 million less than CEOs who also served as chairman of the board, as well as CEOs of companies run by a founder or company insider.
2. How much does the board chairman's status determine CEO pay? CEOs of companies run by an independent board chairman were paid an annual average of $11 million. CEOs who also served as their company's chairman of the board were paid an average of $13.8 million a year. CEOs of companies with a founder or company insider board chairman were paid the highest annual amount of $15.6 million.
3. Why do CEOs of companies with a founder or insider board chairman get paid the most? According to George Davis Jr., head of Egon Zehnder, it's due to the belief that "they bring greater shareholder returns." But Mr. Davis also believes as time goes on, "the gap is going to narrow" between compensation for CEOs of companies with an independent board chairman and those without.