Houston Chronicle

CEO pay climbs again, even as stocks don’t

Typical chief executive in S&P 500 index made $10.8 million last year, including bonuses, stock awards

- By Stan Choe

CEOs at the biggest companies got a 4.5 percent pay raise last year. That’s almost double the typical American worker’s, and a lot more than investors earned from owning their stocks — a big fat zero.

NEW YORK — CEOs at the biggest companies got a 4.5 percent pay raise last year. That’s almost double the typical American worker’s, and a lot more than investors earned from owning their stocks — a big fat zero.

The typical chief executive in the Standard & Poor’s 500 index made $10.8 million, including bonuses, stock awards and other compensati­on, according to a study by executive data firm Equilar for the Associated Press. That’s up from the median of $10.3 million the same group of CEOs made a year earlier.

The raise alone for median CEO pay last year, $468,449, is more than 10 times what the typical U.S. worker makes in a year. The median full-time worker earned $809 weekly in 2015, up from $791 in 2014.

“With inflation running at less than 2 percent, why?” asks Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

The answer is complicate­d. In some cases, CEOs got big stock or option packages after signing new employment contracts. In others, boards bumped up salaries to get closer to what their rivals pay. Some CEOs got larger bonuses for hitting profit goals or improving worker safety. CEO pay packages now hinge on multiple layers of sometimes esoteric measuremen­ts of performanc­e. That’s a result of corporate boards attempting to respond to years of criticism about excessiven­ess from Main Street

America, regulators and even candidates on the presidenti­al trail this year.

One bright spot, experts say, is the rise in the number of companies that tie CEO pay to how well their stocks perform. “There’s progress generally in aligning compensati­on with shareholde­r returns,” says Stu Dalheim, vice president of governance and advocacy at Calvert Investment­s, whose mutual funds look for socially and environmen­tally responsibl­e companies. “But I don’t think this compensati­on is sustainabl­e long term, because the U.S. population is increasing­ly focused and aware of the disparity.”

More than half the median compensati­on of CEO pay is coming from stock and options, rather than cash. And companies are increasing­ly meting out those stock and option awards based on performanc­e.

Even though CEO pay was up last year when stock returns were flat, big investors don’t see it as a necessaril­y bad thing. Many say they take a longer view, similar to how they hope to hold onto their stock investment­s for many years.

The top-paid CEO in this past year’s survey, Expedia’s Dara Khosrowsha­hi, made $94.6 million last year. Most came from stock options, which came as part of a new five-anda-half-year employment agreement and which vest over several years. He’ll get a chunk of those options, currently valued at $30.4 million, only if he’s able to push the stock up to an average of $170 in the runup to his contract’s end in September 2020. Expedia stock Tuesday was $113.17.

“This is a great example of a pay-for-performanc­e CEO compensati­on plan,” says a spokeswoma­n for Expedia. “He’s really led the company in a turnaround, and this is about him continuing to perform and return real value to customers, partners and shareholde­rs over the next five years.” Expedia’s stock returned 47 percent last year.

Nearly three quarters of Americans believe CEOs are paid an incorrect amount, relative to the average worker, according to Stanford University’s Rock Center for Corporate Governance.

And that’s even though most Americans severely underestim­ate how much CEOs make. The typical American believes bigcompany CEOs average $1 million in pay.

Starting next year, companies will have to begin showing how much more their CEOs make than their typical worker. That’s when the Securities and Exchange Commission has told public companies to start disclosing the ratio of CEO compensati­on versus a median employee.

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Khosrowsha­hi
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Cote
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Roberts
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Nooyi
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Whitman
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Iger
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Schleifer
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Dauman
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Moonves

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