BIGGER IN TEXAS
State’s top CEOs see a big jump in compensation.
How big was your raise last year?
If you were CEO of a Texas company, it was probably pretty healthy. Median compensation for Texas executives jumped by nearly $280,000 last year, a bump of 7.5 percent that easily doubled average wage increases of workers, according to data compiled by S&P Global and analyzed by the Houston Chronicle.
Last year was a good one for the economy and most corporations, which earned solid profits and benefited from deep tax cuts enacted by a Republicancontrolled Congress. Company executives did particularly well, earning a median compensation of $4 million, up from $3.7 million in 2017.
No one did better in Texas than Randall Stephenson, the CEO of AT&T of Dallas. His compensation topped $29.1 million last year up from $28.7 million in 2017. But his company didn’t do as well: AT&T’s profits fell 34 percent to $19.4 million in 2018 from $29.5 million in 2017.
“AT&T is committed to paying for performance and aligning the interests of our executives with those of our shareholders,” wrote Megan Ketterer, a spokesperson for AT&T. “Our CEO’s target compensation was variable and tied to performance incentives. Mr. Stephenson’s compensation reflects the responsibilities of running a Fortune 10 company.”
Stephenson was in a particularly exclusive club. He was the only CEO in the top-10 compensated in Texas not in the energy industry, which benefited through most of last year from rising oil prices that peaked about $76 a barrel in October.
Oil and gas executives’ compensation is very sensitive to the price of oil. Researchers at the University of California and the University of Michigan found that a 10 percent rise in oil prices increases executive compensation by 2 percent, according to a paper published in December.
Following Stephenson on the best paid list were Ryan Lance, CEO of ConocoPhillips, at $23.4 million, and Jack Fusco, CEO of Cheniere Energy, $23.4 million last year, and Greg Garland of Phillips 66, another Houston company, at $19.3 million. The three Houston companies earned strong profits — Both ConocoPhillips and Cheniere posted profits in 2018 after several consecutive years of losses during the energy downturn. Phillips 66’s profits were up almost 10 percent from 2017.
Rounding out the top five was Darren Woods, the Exxon Mobil CEO, who earned $18.8 million in compensation. The company’s profits rose about 6 percent last year to $20.8 billion from $19.7 billion in 2017, Exxon, which is headquartered in Irving, reported.
Nearly two-thirds of Texas’ executives at nearly 300 Texas public companies included in the analysis received increases in compensation, which includes salary, restricted stocks, options, bonuses and other benefits. CEO pay has been on a dramatic rise for years, more than tripling between the early 1990s and early 2000s, according to a study published by the Journal of Finance Economics. Median compensation has increased a average of 5 percent per year over the last five years, according to Korn Ferry, an exec
utive compensation consulting firm.
How CEO pay works
Most of the value of CEOs’ compensation comes from stockbased long-term incentives tied to the financial success of the company and its share prices. The idea is simple: If the company does well, the CEO does well.
In 2018, the proportion of stock-based compensation as a share of total pay surpassed 50 percent at large companies for the first time, according to analysis by Institutional Shareholder Services Inc., a corporate governance and proxy consulting company.
Most frequently, companies hire consulting firms to help them figure out the “market wage” for a CEO of a similarly sized company in their industry. But making such comparisons can be challenging given how large and complex corporations have become.
In addition, corporations find themselves competing for managerial talent with companies not just in their industry, but across industrial sectors.
“One of the pitfalls is misunderstanding what the appropriate reference group is for benchmarking pay,” said Cory Morrow, a senior client partner in executive pay practice at Korn Ferry, a consulting firm that specializes in executive compensation. “If you’re in energy, it used to be other energy companies. But talent is more portable than it used to be, and people don’t stay in one industry for their career anymore.”
Stockholders have become more interested in the environmental and social records of their companies and are beginning to tie executive compensation to progress on issues such as climate change, economic disparity and representation of minority groups. The European oil major Royal Dutch Shell has linked executive pay to meeting carbon emission reduction goals. Then, California-based Chevron announced in February that it would tie executive compensation to reducing its greenhouse gas emissions. Those decisions may encourage other energy companies to do the same, experts said.
“That will put more pressure on other petroleum companies to follow suit,” said Seymour Burchman, an executive compensation consultant and managing director at Semler Brossy, a consulting firm, of how Chevron and Shell may influence other companies’ decisions. “The activist investors and big institutional investors are not giving up on this.”
‘ESG goals’
hese altruistic goals — known in investment speak as “ESG goals,” for environmental, social and governance — aim to push CEOs to operate their companies with an eye toward social responsibility as well as stock markets. ESG ratings are increasingly important to companies because investors have begun using them as a metric to evaluate their portfolios. Talented employees, too, are starting to use the analysis to determine where they will work.
So far, environmental and social shareholder proposals have rarely gained majorities — Exxon Mobil shareholders this year rejected climate-related resolutions — but including such issues in measures of corporate and executive performance is gaining adherents. Support for environmental and social shareholder proposals among voting investors increased to 24 percent in in 2018 from 6 percent in 2000, according to the ISS analysis.
“It’s definitely a hot topic,” said Bixby. “Boards of directors are increasingly interested in knowing what sort of rating their company has on environmental and social goals, and aware of the microscope they’re under.”