September 27, 2023

Executive Pay: A Special Report: The Drought Is Over (at Least for C.E.O.’s)

After shrinking during the 2008-9 recession, paychecks for top American executives are growing again — in many cases, significantly so.

Rarely has the view from the corner office seemed so at odds with the view from the street corner. At a time when millions of Americans are trying to hang on to homes and millions more are trying to hang on to jobs, the chief executives of major corporations like 3M, General Electric and Cisco Systems are making as much today as they were before the recession hit. Indeed, some are making even more.

The disparity is especially stark as companies are swimming in cash. In the fourth quarter, profits at American businesses were up an astounding 29.2 percent, the fastest growth in more than 60 years. Collectively, American corporations logged profits at an annual rate of $1.678 trillion.

So far, this recovery has not trickled down. After two relatively lean years, C.E.O.’s in finance, technology, energy and beyond are pulling down multimillion-dollar paychecks. What many of these executives aren’t doing, however, is hiring. Unemployment, although down from its peak, stood at 8.8 percent in March. And few economists predict the jobless rate will drop substantially anytime soon.

For the average C.E.O., however, the good times have returned. The median pay for top executives at 200 major companies was $9.6 million last year. That was a 12 percent increase over 2009, according to a study conducted for The New York Times by Equilar, a compensation consulting firm based in Redwood City, Calif.

Many if not most of the corporations run by these executives are doing better than they were in the downturn. Many businesses were hit so hard by the recession that even small improvements in sales and profits look good by comparison. But C.E.O. pay is also on the rise again at companies like Capital One and Goldman Sachs, which survived the economic storm with the help of all those taxpayer-financed bailouts.

Against such a backdrop, it’s noteworthy that recent moves to empower shareholders seem to have done little to tamp down corporate enthusiasm for paying top dollar to top executives. This is generally the season when companies hold annual meetings for their shareholders.

Under new rules included in the Dodd-Frank financial regulations, nearly all public companies must now give shareholders a say on executive pay. Analysts and corporate governance experts are wondering how these votes will play out, even though companies are under no obligation to heed their shareholders’ advice.

“What’s funny about pay is that when the market is going up, it covers a lot of sins,” said David F. Larcker, director of the corporate governance research program at the Stanford Business School. It is when the market “is going sideways or down that funny things happen,” he said: “Considering some of the current pay packages, shareholders want to see strong results.”

On this year’s list, the highest-paid C.E.O. was Philippe P. Dauman of Viacom, who made $84.5 million in just nine months. (Viacom changed its fiscal year-end to September from December.)

Viacom has said that the compensation was inflated by one-time stock awards linked to a long-term contract signed last year.

Also at the top was Ray R. Irani, the C.E.O. of Occidental Petroleum, who took home $76.1 million last year, up 142 percent from the previous one. Last year, the board awarded Mr. Irani a $33 million cash bonus plus $40.3 million in stock awards, more than double what he received in 2009.

Mr. Irani is retiring this year, and Occidental has said that it has set higher hurdles that will significantly reduce executive pay packages.

Lawrence J. Ellison of Oracle, the software giant, followed close behind, with a $70.1 million payout, though that is down 17 percent from 2009. Still, Mr. Ellison’s fortunes are just fine: he had more than $26.3 billion in stock and other holdings in Oracle in 2010.

UNLIKE some previous years, 2010 registered broad gains in executive pay, benefiting C.E.O.’s from nearly all parts of the economy.

Many consumer products companies also offered rich pay packages, including one for John F. Lundgren, chief executive of Stanley Black Decker, whose pay rose 253 percent, to $32.57 million, after a huge stock award. His counterpart at Emerson Electric, David N. Farr, saw his pay rise 233 percent, to $22.9 million, also because he was granted millions in stock.

Most executive compensation plans consist of stock options that ballooned as markets recovered after the financial crisis. Although executives typically have to wait several years before cashing in new options, the booming stock market still meant that those options were a bonanza for many chiefs, said Bruce H. Goldfarb, a compensation consultant based in New York.

The chief executive of Ford Motor, Alan R. Mulally, made $26.5 million in total pay, up 48 percent over the previous year as a result of big stock option awards. Ford was the only one of Detroit’s Big Three automakers that did not receive a government bailout, and its stock value rose 68 percent last year.

New government regulations put in place after the financial crisis have emboldened some activist shareholders to try again to rein in compensation they deem excessive and undeserved. Although companies will not be bound by such votes, they will have to disclose the results in reports filed with the Securities and Exchange Commission, as well as how they considered the voting in setting subsequent executive pay.

Still, it remains to be seen whether these changes have any teeth. For “say on pay” votes, there is no standard for what percentage of shareholder votes constitutes an endorsement or a rebuttal of policies. Even the prospect of the public votes, though, appears to have altered the relationship between investors and corporate executives on many discussions in recent months.

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