In US, it pays to be a chief executive

BOSTON: Chief executives at large US companies collectively realised at least $6 billion more in compensation than initially estimated in annual disclosures in the five years after the financial crisis first hit, according to a Reuters analysis. The reason for the windfall: the soaring value of their stock awards.

About 300 chief executives who served throughout the 2009 to 2013 period at S&P 500 companies together realised about $22bn in compensation in the form of pay, bonuses and share and option grants, or an average of $73 million each, figures provided by executive compensation data firm Equilar show.

That compares to about $16bn initially reported in annual company summary compensation tables, which include estimates for the value of stock grants based on the price of shares at the time of awards.

The comparison does not include pensions and perks such as country club memberships and use of corporate jets for private use. The study also excludes rewards reaped by other top executives, such as chief financial officers and chief operating officers, and compensation for chief executives who did not serve the full five years.

Further gains in share prices last year and so far this year will only have increased the gap between the annual disclosures and the amount actually derived from the awards, with the full picture for last year only becoming clear over the next couple of months.

The S&P 500’s total return, including dividends, was 166 percent from the end of 2008 until Monday this week, according to S&P Dow Jones Indices.

The impact of the stock market gains on executive pay illustrated in the study will strengthen concerns about how much of an impact the US Federal Reserve’s easy money policies have had on income inequality. Critics say that by raising the value of assets, such as stocks, the Fed’s stimulus has helped those who are already wealthy even as median household income declined 4 percent between 2009 and 2013.

The bull market also has some investors re-evaluating how they judge compensation plans. In some cases, they say chief executives may be benefiting greatly from a rising tide even when their performance might be weak.

“You’re seeing overpayment, for what is market performance or mediocre performance,” said Aeisha Mastagni, an investment officer for the $191bn California State Teachers’ Retirement System, who helps oversee its votes on executive pay proposals at company annual meetings. “Directors can’t ignore the issue of pay inequality or rising executive pay.”

However, more companies are disclosing their realised pay figures and some are eager to defend the supercharged rewards if shareholders have also benefited.

Some of the highest paid executives also often appear in top chief executive lists compiled by investors and others because they have run companies so successfully that their share prices have gone through the roof. – Reuters