TEXAS CHECK
Highest-paid CEOs in state make 100 times the average worker — or more
AT&T’s Randall Stephenson topped the charts as the highestpaid CEO in Texas last year, taking home $32 million in total compensation, according to S&P Global Market Intelligence research performed for the Houston Chronicle. Not only that, the Dallas-based wireless and media executive was near the top of the pack for the nation as well, coming in seventh among all CEOs, according to the research firm Equilar.
Stephenson, who stepped down this month and now serves as executive chairman, earned 325 times the median AT&T employee.
“It’s well known that the typical worker’s wage has not grown that much in the last 40 years,” said Larry Mishel, a senior economist at the Economic Policy Institute, a nonpartisan nonprofit funded mostly by foundations and some labor unions. “In contrast, CEO compensation has grown quite a lot.”
The data on Texas CEO compensation is based on proxy statements for publicly traded companies for 2019. (CEOs at Houston-based companies, profiled in the July 13 issue of Texas Inc., were not included in this ranking.) It shows not only the sizeable pay packages for CEOs at some of Texas’ biggest companies, but it also shows how much more they are making than workers at their companies.
The median CEO in Texas made 71 times the median worker at his or her company, but the 10 highest-paid CEOs in the state made at least 100 times the median worker at his company.
As the economy recovered in the years following the last recession, CEO wages grew as well, recovering to pre-recession heights, Mishel said.
Worker pay did not grow as fast. CEO compensation has risen 52.6 percent since the 2009 recession, while the aver
age workers saw compensation grow 5.3 percent. “We call it wage suppression,’’ Mishel said. “We’ve had a dramatic weakening of unions, which has had a dramatic effect on low-wage workers, especially men.”
To get a sense of how much a CEO can make, look no further than Valero Energy Corp.’s Joseph Gorder and Tenet Healthcare Corp.’s Ronald Rittenmeyer, who earned $28.2 million and $24.3 million, respectively. Exxon Mobil Corp.’s Darren Woods came in at No. 4. with $23.5 million in total compensation, followed by iHeartMedia’s Robert Pittman at $22.9 million. Texas Instruments Inc.’s Richard Templeton got $18.6 million and Nexstar Media Group’s Perry Sook got $16.4 million. Diamondback Energy’s CEO Travis Stice, Jacobs Engineering Group’s Steven Demetriou and Comerica’s Ralph Babb Jr. rounded out the list of the top 10.
Some of those same CEOs have since taken pay cuts this year as COVID-19 threw the economy, and their companies, into a tailspin.
Rittenmeyer, Dallas-based Tenet’s executive chairman and CEO, wrote in his letter accompanying the health care company’s April proxy statement that he would join other executives and directors donating substantial portions of their salary to the nonprofit Tenet Care Fund, which assists employees facing hardship. In a May 5 first quarter earnings call, Rittenmeyer said he would donate half of his salary for six months.
It’s a lot of money, unless you’re making as much as he is. Rittenmeyer was due to make a base salary of $1.5 million this year, putting the donation at roughly $375,000, or 1.5 percent of his total compensation package last year. A spokeswoman declined to comment but pointed to various public statements
instead.
Gary Kelly, chairman and CEO of Dallas-based Southwest Airlines ($8.8 million in 2019 compensation), also pledged to take a pay cut this year. His $750,000 base salary was 8.5 percent of his compensation last year, according to SEC filings.
The pay cuts come as many company’s stock price has dived, impacting executive compensation. Almost across the board, the bulk of CEO compensation comes in the form of stock. Some of it is paid in options or restricted stock that vests over time, at which point the value may change. Some of the stock vests only when the company or CEO meet certain performance metrics. For example, AT&T granted Stephenson $19.8 million in restricted stock awards last year.
“The $32 million reported in the summary compensation table is not what was ‘paid’ to our CEO in 2019, but rather it represents cash compensation realized last year, plus long-term compensation that may or may not materialize in coming years, and an increase in pension value,’’ A&T spokeswoman Daphne Avila wrote in an email. Instead, AT&T calculated that Stephenson “realized” $25.6 million in pay in 2019 based on actual distributions that year.
Avila also pointed out that the company rewarded shareholders with a roughly 46 percent total shareholder return last year, which is dividends plus stock price appreciation. That was well above the median of 10 percent for Texas-based companies, according to S&P Global Market Intelligence.
After Stephenson, San Antonio-based Valero Energy granted chairman and CEO Joseph Gorder the second-highest package in Texas with $28.2 million in total compensation. The bulk of that was restricted stock awards and an increase in the value of his pension, which varies based on interest rates and is outside the company’s control. The oil refiner’s earnings sank in 2019 on high costs for high-sulfur “sour crude” and high gasoline inventories. Still, the one-year total shareholder return for Valero in 2019 was a lofty 30 percent. Over 91 percent of shareholders approved the pay plan in an advisory vote, a spokeswoman said.
Meanwhile, another San Antonio-based CEO took his company into bankruptcy in 2018 and then back out in 2019. iHeartMedia had struggled under $20 billion of debt, in part from a Bain Capital and Thomas H. Lee Partners leveraged buyout a decade earlier. That didn’t stop the media company from awarding chairman and CEO Robert Pittman with $22.9 million in compensation in 2019, much of it in restricted stock and options.
“iHeart is the rare example of a major traditional media company that has made the successful transformation into a 21st century media company — one with unparalleled scale, reaching 91 percent of Americans each month with our broadcast assets alone, more than any other media company,” Pittman said in a press release in January.
That same month, before the pandemic led to widespread shutdowns, employees said the company was laying off hundreds of people in local stations to consolidate offices and replace staff with artificial intelligence, according to The Washington Post. A spokeswoman at the time said the layoffs represented a small portion of the 12,500 staff members. After the pandemic hit, Pittman announced 90-day furloughs for an unspecified number of employees and said the company would cut executive pay. He would forgo the remainder of his 2020 salary, according to Billboard.
The company also said in a proxy statement that Pittman’s base salary increased at the end of last year to $1.5 million from $1.2 million the prior year and that his compensation is based on meeting pre- and post-bankruptcy goals. Pittman made 408 times the median employee at the company, whose total compensation was $56,068. A spokeswoman for iHeart did not respond to requests for comment.
Gap grows
Mishel, the Economic Policy Institute economist, has been studying the wage gap between workers and CEOs for several years. He and fellow researcher Julia Wolfe’s 2019 paper on the subject found that CEOs at the top 350 firms by revenue made about 221 times what workers made on average in 2018. In contrast, the average CEO in 1989 made just 58 times the average worker, and only 20 times the average worker in 1965.
One contributor to the gap is that union membership has fallen and workers have to compete with lower-wage labor around the world. Also, as companies increasingly tie CEO compensation to stock prices, the stock market’s overall gains since the 1980s and 1990s have meant big payoffs for the heads of companies, Mishel said. Boards also tend to benchmark pay against other companies of similar sizes so they can compete for talent. As a result, a rising tide lifts all CEO boats.
Not all of the highest paid CEOs in Texas pay their workers low wages. For example, the median AT&T worker saw $98,630 in total compensation last year. Valero reported that it paid its median employee $272,417. In some instances, it’s not that wages were low. It’s that CEO wages are even higher.
Greg Arnold, a managing director for compensation consulting firm Semler Brossy, cautioned that it’s impossible to compare the CEO-employee median pay ratio across industries because some industries such as retail employ more part-time workers.
It's also hard to compare companies within the same industry. Some outsource much of their work and wouldn’t count those employees toward their ratio. “It’s not a metric that is useful for any sort of decision-making,” Arnold said. “Our clients review it but don’t focus on it for decisions about CEO pay.”
“It’s well known that the typical worker’s wage has not grown that much in the last 40 years.” Larry Mishel, Economic Policy Institute