CEO pay and perks on the rise

CEO PAY has been going in one direction for the past three years: up. The head of a typical large public company made US$9.7 million in 2012, a 6.5 per cent increase from a year earlier that was aided by a rising stock market, according to an analysis by The Associated Press using data from Equilar, an executive pay research firm.

CEO pay, which fell two years straight during the Great Recession but rose 24 per cent in 2010 and 6 per cent in 2011, has never been higher.

Companies say they need to pay CEOs well so they can attract the best talent, and that this is ultimately in the interest of shareholders. But shareholder activists and some corporate governance experts say many CEOs are being paid far above what is reasonable or what their performance merits.

Pay for all US workers rose 1.1 per cent in 2010; 1.2 per cent in 2011; and 1.6 per cent last year — not enough to keep up with inflation.

The median wage in the US was about US$39,900 in 2012, according to data from the Bureau of Labor Statistics.

After years of pressure from corporate governance activists unhappy about big payouts, many companies have revamped their compensation formulas. They have awarded a bigger chunk of compensation in stock to align pay more closely to performance, become more transparent about how compensation decisions are made and, in some cases, promised to claw back pay from fired executives.

Shareholder activists say the changes are a step in the right direction, yet they argue that CEO pay remains too high and that there is still too much incentive to focus on short-term results.

The highest paid CEO was Leslie Moonves of CBS, who made US$60.3 million. He beat the second-place finisher handily: David Zaslav of Discovery Communications, who made US$49.9 million.

Five of the 10 highest-paid CEOs were from the entertainment and media industry.

For the fourth year in five, health care CEOs received the highest median pay at US$11.1 million, while utility CEOs had the lowest at US$7.5 million. The median value is the midpoint; half the CEOs in that group made more and half less.

WOMEN EARN MORE

The median pay for women CEOs was higher than it was for men — US$11.2 million compared with US$9.6 million — although only 3 per cent of the companies analyzed were run by women.

Irene Rosenfeld of Mondelez International, the snack giant that was spun off from Kraft Foods last year, was the highest-paid female CEO, taking in US$22 million.

The biggest changes in compensation last year came from stock, which increased 17.2 per cent, and from stock options, which declined by 16 per cent. Over the past five years, the amount of compensation that comes from stock has risen from 31.7 per cent to 44.3 per cent, while the amount from stock options has fallen from 31.9 per cent to 17.6 per cent.

Shareholders tend to favour stock compensation because it can be tied to metrics like revenue and earnings, whereas the value of stock options depends only on the stock price.

Salary and perks rose last year, while bonuses fell. As a proportion of total pay, bonuses accounted for 23.8 per cent, salary 10.4 per cent and perks 3.8 per cent.

The third straight year of rising pay coincided with an improving economy and an increase in corporate revenue, profits and stock prices. The S&P 500 index rose 13.4 per cent last year. The median profit increase at the companies in the Equilar study was 6.1 per cent, and the median revenue gain was 7.6 per cent.

With the economy on steadier footing and the stock market surging, the debate over CEO pay is settling into more of a simmer than a boil.

Companies cut CEO pay in 2008 and 2009 amid investors' white-hot anger over the losses they suffered during the financial crisis.

Since 2011 they have been required by law to hold 'say on pay' votes, which give shareholders the right to express whether they approve of the CEO's pay. The vote is non-binding, but companies don't want to deal with the public embarrassment of a 'no'.

Companies say they are listening to their shareholders' concerns. They point to changes in how CEOs are rewarded that are meant to tie pay more closely to company performance. For example, they're more often linking stock awards to revenue, earnings and share price targets, rather than just handing them out automatically.

Charles Elson, a well-known shareholder rights expert, who is director at the Weinberg Center for Corporate Governance at the University of Delaware, has been crusading for companies to stop compensating their CEOs based on what their peers at similar companies are making.

The trouble with peer groups, Elson says, is that a CEO could have a terrible year, "but if my peer's pay goes up, my pay will too."

ALL EARNINGS EXAMINED

To calculate pay, Equilar looked at salary, bonus, perks, the potential future value of stock awards and option awards, and other pay that companies have to report for their top executives in regulatory filings each year.

This year's study examined pay for 323 CEOs at S&P 500 companies that had filed their shareholder proxies by April 30. The sample includes only CEOs in place for at least two years.

Sixty per cent of CEOs received a raise, 37 per cent got a pay cut and the rest had pay that was virtually flat.

AP