March 29, 2024

Executive Pay Report: An Unstoppable Climb in C.E.O. Pay

Well, what a difference a few months and a larger pool of C.E.O.’s make. According to an updated analysis, the top 200 chief executives at public companies with at least $1 billion in revenue actually got a big raise last year, over all. The research, conducted for Sunday Business by Equilar Inc., the executive compensation analysis firm, found that the median 2012 pay package came in at $15.1 million — a leap of 16 percent from 2011. 

So much for the idea that shareholders were finally getting through to corporate boards on the topic of reining in pay.

At least the stock market returns generated by these companies last year exceeded the pay increases awarded to their chiefs. Still, at 19 percent in 2012, that median return was only three percentage points higher than the pay raise.

In other words, it’s still good to be king.

Because the data shows only chief executives’ pay, it does not reveal how good it still is to be a prince. Brian Foley, an independent compensation consultant in White Plains, pointed out that the 2012 compensation of the No. 2 executives at some of these companies would have vaulted them to the top ranks on the C.E.O. roster.

“The interesting thing is that there are people at these companies that make as much or more than other C.E.O.’s,” Mr. Foley said. “I’m sure it’s a case of ‘Look at what the C.E.O. has; I want more of that.’ “

Lawrence J. Ellison, founder and C.E.O. of Oracle, the software company, is a familiar face on the pay charts, and is ranked No. 1 this year. And had his two top lieutenants been included, they, too, would have landed among the top five on the list. Safra A. Catz, Oracle’s chief financial officer and co-president, and Mark V. Hurd, also a co-president, each received packages worth $52 million in 2012. (Mr. Hurd, you might remember, received severance of more than $12.2 million when he left Hewlett-Packard in 2010.)

As usual, cash pay for many of the managers pales next to the value of the stock and option grants they received. Median cash compensation was $5.3 million last year, while stock and option grants came in at $9 million.

Stock grants are clearly where the action is, and their value can really add up. Equilar’s analysis calculates the median value of stock holdings of these top C.E.O.’s at $51 million.

The trouble is, stock grants, which are supposed to create an incentive to improve a company’s performance, are also where pay excesses and disconnects arise, compensation consultants say. How these boards measure corporate performance can create pay problems by failing to align long-term incentives with shareholders’ interests.

This is a significant lapse, given how hefty the incentive awards of stock or options can be. Performance shares generally comprise at least 50 percent of a typical chief executive’s long-term incentive award, consultants say.

The median of combined stock and option awards last year for the 200 C.E.O.’s on the list was 60 percent of pay. But individual cases can be far larger. Mr. Ellison received $90.7 million in options in 2012, or 94 percent of his nearly $96.2 million in total pay. Over all, Mr. Ellison’s compensation was up 24 percent from last year; his shareholders’ returns, meanwhile, were negative 22 percent in the company’s fiscal year, which ended in May.

Mr. Ellison was hardly alone in receiving boatloads of stock in 2012. Among the five top C.E.O.’s receiving compensation packages that were at least double those of last year, stock and option awards — which can vest over several years — provided the major kick.

Those executives included Robert A. Kotick of Activision Blizzard, the software publishing company; James Q. Crowe of Level 3 Communications, the communications network company; and Mark G. Parker of Nike. Mr. Kotick received stock awards worth almost $56 million, or 86 percent of his total. Of Mr. Crowe’s $40.7 million in pay, stock and option grants amounted to $37 million, or 91 percent of the total. At Nike, Mr. Parker’s stock and option awards were 77 percent of his $35.2 million in compensation.

At least shareholders of Level 3 and Nike made money on their stocks in fiscal 2012 — a gain of 36 percent at Level 3 and 30 percent at Nike. Activision’s holders weren’t so fortunate: their company’s shares lost 12 percent.

Article source: http://www.nytimes.com/2013/06/30/business/an-unstoppable-climb-in-ceo-pay.html?partner=rss&emc=rss