CEO pay rises slightly, while workers struggle to find jobs
Stock awards could land execs major windfalls in the future
Executives who successfully steered their companies through the quagmire of recession are now reaping their rewards — although some CEOS might have hoped there would be more.
As companies get healthier, employees’ average pay rises and stock prices soar, 2011 brought a year of slight raises for CEOS. While another year of raises comes off one of the biggest increases ever for executive pay in 2010, it wasn’t the bonanza CEOS have seen in prior years. Meanwhile, unemployment remains high for most workers.
The annual reporting season for executive pay is in high gear. So far, the tally shows the median CEO pay in 2011 rose 2% to $9.6 million, based on 138 Standard & Poor’s 500 companies that have reported CEO pay this year and that had the same CEO for all of 2010 and 2011, according to the USA TODAY analysis of data from GMI Ratings on proxies that have already been filed.
The backdrop now makes the increases in CEO pay a little easier for investors to stomach. There’s a powerful, steady rally that has doubled stock prices from the depths of the bear market, and companies are setting records in financial performance. S&P 500 companies reported record profit and cash piles in 2011 and are shelling out dividends of never-before-seen sizes to shareholders.
A 2% raise in 2011 might not seem like much, given some of the double-digit raises CEOS have gotten in years past and given that S&P 500 corporate profit rose 15% in 2011. But this latest raise in CEO pay comes just one year after the captains of American business saw their haul climb back toward pre-recession levels thanks to one of their biggest increases in pay in years. The latest rise shows that despite the hand-wringing in recent years over the large pay packages many CEOS receive and attempts to reform, the boards are right back to approving increases, says Eleanor Bloxham, CEO of the Value Alliance. “Many board members think CEOS are overpaid, but they have not yet figured out what they need to do to say, ‘No,’ ” Bloxham says.
Meanwhile, CEO pay continues to escalate even as companies only slowly add to their payrolls. Despite some hiring growth, the unemployment rate remains stubbornly high at 8.3% in February. Employees are starting to see some wage growth, too. Average weekly earnings for all employees rose 2.7% in 2011, based on data from the Bureau of Labor Statistics. Real average weekly earnings, which are adjusted for inflation, though, have fallen 1.2% from the October 2010 peak through February, the latest data available.
And a closer look at the proxies filed so far shows some important overall trends, including:
-Back- to-back increases in pay. CEO pay continues its escalating trajectory. CEOS’ 2% raise in 2011 follows a 27% increase in 2010, based on pay of CEOS analyzed by USA TODAY last year.
-O-tsized jump in stock and options pay. Perhaps setting CEOS up for a windfall in future years if stock prices keep rising, CEOS pulled stock and option grants worth $6.3 million, an increase of 8% from 2010. These grants get increasingly lucrative as stocks rise in value. The growth in such grants further cements the fact CEOS don’t make their major money from cash salaries, which in 2011 rose a median 3% to $1.1 million.
The median value of just stock grants, not including options, soared 10% to $3.6 million, making it again the largest source of CEOS’ total pay.
-Moderation of megabonuses. The median bonus paid to CEOS was a hefty $2.1 million, but that was down 3% from 2010 as some CEOS missed performance targets. That’s in stark contrast to the 47% jump in the 2010 median bonus paid by companies analyzed by USA TODAY last year.
-Windfall from cashing in stock. Thanks to the rising stock market, executives are already being rewarded handsomely for stock and options they were given in years past. The median amount that CEOS actually took home, which includes salary and cash bonuses, as well as stock and options awarded in previous years that vested or were cashed in, was $7.8 million, up 12%.
Seeing another year of raises isn’t surprising, given many of the factors CEOS are responsible for are on the upswing, namely corporate profit, says Wayne Guay, a professor of accounting at the University of Pennsylvania’s Wharton School. Stock prices have nearly doubled since the depths of the recession in 2009. While unemployment remains high and incomes flat for most workers, those are not factors that dictate what CEOS earn, he says.
And some CEOS did see massive increases. Altera CEO John Daane enjoyed the largest bump. His total compensation jumped 278% to $29.6 million last year. Most of the increase was due to a $21 million award of restricted stock.
Another significant pay increase occurred at Apple, a company that wasn’t included in the USA TODAY sample because the new CEO, Tim Cook, didn’t serve all of 2011 as CEO. Cook was named CEO in August 2011 after the death of Steve Jobs, who famously earned $1 a year in salary as Apple’s CEO. Had Cook been included, though, he would have topped the list for not only the biggest amount paid to any CEO but also for the largest increase. Cook’s pay soared 540% to $378 million in 2011.
There were still some large sums among the payouts to CEOS who served all of 2011 — though none approaches Cook’s haul. The largest payout in the study went to Philippe Dauman of Viacom. Dauman was also the top paid in USA TODAY’S 2010 CEO pay survey.
Dauman received a $43.1 million total pay package. That includes a $3.5 million salary, which is more than three times greater than the median in the sample, and a $20 million bonus, $13.3 million in stock and $6 million in stock options. Even though Dauman’s pay fell 49% in 2011 from 2010, he is still the highest-paid CEO in the USA TODAY analysis. Dauman received more than $50 million from one-time stock and options grants in 2010.
Another media mogul, Disney’s Robert Iger, came in with the third-biggest paycheck, bringing in a total pay package of $31.4 million, up 12% from 2010. Iger’s pay has soared 45% over the past two years.
‘Other compensation’ rises, too
Not only are the mega-paychecks still prevalent, but the category called “other compensation,” which includes perks, also is on the rise. Perks have been under fire the last few years as symbols of corporate excess.
Other compensation tends to be a tiny portion of the total pay CEOS get. The median amount of other compensation given to CEOS in 2011 was $173,000, which is less than 2% of the typical CEO’S total financial haul. Still, perks have been a political and populist lightning rod since the idea of shareholders paying for a CEO’S private-jet time in addition to multimillion-dollar pay is tough to sell.
Other compensation, though, rose 14% in 2011. The biggest recipient of other compensation last year was Jerald Fishman of Analog Devices. His other compensation totaled $5.1 million, making it the largest part of his total pay package in 2011. Most of that payout originated from Fishman’s 2010 employment contract with the company, acting as a sort of retention bonus.
Next on the list for large amounts of other compensation is Edward Breen of Tyco, who received such compensation to the tune of $2.2 million. A bulk of that, 68%, came from the company covering Breen’s tax bill from insurance benefits and state taxes he owed to New York for work done in that state. His other pay, though, also included $254,775 worth of personal use of the corporate jet and a $70,000 cash allowance. Tyco became a symbol of excessive CEO pay in the 2000s after former CEO Dennis Kozlowski was convicted in 2005 of receiving millions in unauthorized bonuses.
Out the door with millions
The USA TODAY analysis focuses on CEOS who served all of 2011. Yet, some CEOS managed to score large payouts, even on the way out this year. William Weldon, who announced on Feb. 21 that he would step down as the CEO of Johnson & Johnson effective April 26, is departing with $144 million in retirement pay. The pay was accumulated from previous years, including a pension with a value of $48.4 million and deferred compensation of $95.1 million.
These seemingly massive payouts to CEOS may raise eyebrows, but in many cases, they’re largely due to accounting and actuarial factors — not the board necessarily showering executives with pay, says Alan Johnson of pay consultant Johnson Associates.
Much of the increase in other compensation, for instance, is a function of the price of jet fuel rising, thereby boosting the cost of corporate jet use, he says. Increases in other items of executive pay are sometimes because of falling interest rates, which, according to accounting rules, increase the value of future obligations on paper.
“It’s hard to reduce (CEO pay) to a simple formula,” he says.
Meanwhile, with stock prices rising and most workers seeing the value of their investments and 401(k) accounts rise, outcry over CEO pay has subsided, says Wharton’s Guay. The topic of how much CEOS should get paid was widely discussed in recent years, including by President Obama amid the financial crisis, he says.
But now that the financial crisis of 2008 has faded, so, too, has much of the interest in CEO paychecks. “When there’s a crisis, CEO pay is something people focus on,” Guay says. When executives do things we don’t think they should have done, many figure the pay incentives led them to do it, he says.
But he adds, outcry over CEO pay is only the next crisis away. “When there is a crisis next, (interest) in CEO pay will be back,” he says.