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The Associated Press
May 9, 2011, 4:45PM ET
CEO pay exceeds pre-recession
level
By RACHEL BECK
NEW YORK
In the boardroom, it's as if
the Great Recession never happened.
CEOs at the nation's largest
companies were paid better last year than they were in 2007, when the
economy was booming, the stock market set a record high and unemployment
was roughly half what it is today.
The typical pay package for
the head of a company in the Standard & Poor's 500 was $9 million in 2010,
according to an analysis by The Associated Press using data provided by
Equilar, an executive compensation research firm. That was 24 percent
higher than a year earlier, reversing two years of declines.
Executives were showered
with more pay of all types -- salaries, bonuses, stock, options and perks.
The biggest gains came in cash bonuses: Two-thirds of executives got a
bigger one than they had in 2009, some more than three times as big.
CEOs were rewarded because
corporate profits soared in 2010 as the economy gradually got stronger and
companies continued to cut costs. Profit for the companies in the AP
analysis rose 41 percent last year.
The stock market also
continued its climb. Stocks rose 13 percent in 2010 and have now almost
doubled since March 2009. The market's two-year run has fattened executive
bonuses because some CEOs are rewarded for how the company's stock does.
Separately, the bull market
has left CEOs enormous paper gains on stock and options they were granted
as part of pay packages in 2009 and 2010. They are already worth $6.3
billion, 68 percent more than the companies thought they would be worth
over the lifetime of the grants.
The AP used the Equilar data
to analyze CEO pay packages at 334 companies in the S&P 500 that had filed
statements with federal regulators through April 29. Pay was analyzed at
companies that had the same CEO in both 2009 and 2010. The AP's analysis
is the most comprehensive of 2010 compensation.
Among the other findings in
the AP analysis:
-- The highest-paid CEO in
2010 was Philippe Dauman of Viacom, the entertainment company that owns
MTV, Nickelodeon and Paramount Pictures. He received a pay package valued
at $84.5 million, two and a half times what he made the year before. He
signed a contract in April 2010 that included stock and options valued by
the company at $54.2 million when they were granted.
-- Six of the 10 best-paid
CEOs come from media or entertainment, industries helped by a recovery in
advertising and innovations in digital distribution. Besides Dauman, they
are Leslie Moonves of CBS, $56.9 million; David Zaslav of Discovery
Communications, $42.6 million; Brian Roberts of Comcast, $31.1 million;
Robert Iger of Walt Disney, $28 million; and Jeff Bewkes of Time Warner,
$26.1 million.
-- The 10 highest-paid CEOs
made $440 million in 2010, a third more than the top 10 made in 2009. Four
CEOs -- Dauman, Moonves, Roberts and Ray Irani of Occidental Petroleum --
were on the Top 10 list both years.
To calculate CEO pay, the AP
adds an executive's salary, bonuses, perks, any interest on deferred pay
that's above market interest rates, and the value a company places on
stock and stock options awarded during the year.
The median pay value of $9
million, calculated by Equilar, is the midpoint of the companies used in
the AP analysis; half of the CEOs made more and half made less. In 2007,
the median pay was $8.4 million. In 2008 it was $7.6 million, and in 2009
it was $7.2 million. The $9 million median for 2010 is the highest since
the AP began the analysis in 2006.
The economy gradually
improved in 2010, the first full year of recovery after the Great
Recession. The private sector added 1.2 million jobs after losing 5
million in 2009. The unemployment rate fell from 9.9 percent to 9.4
percent.
For companies that the AP
analyzed, revenue grew about 12 percent, according to data provider
CapitalIQ. That helped lift earnings, as did companies' ability to hold
down costs. Companies could limit raises for rank-and-file workers because
of the weak labor market.
The bigger profits helped
push up the typical cash bonus given to a CEO by 39 percent in 2010, to $2
million, according to Equilar. Some companies, including Ford and JPMorgan
Chase, didn't grant bonuses in 2009 but paid big sums last year as
business made a strong comeback from the recession.
Companies analyzed by AP
granted their CEOs about $1.3 billion in stock in 2010, up about $300
million from the year before. They awarded stock options worth $702
million, or about $27 million more than the year before.
Those figures are based on
formulas the companies use to estimate what the stock and options will
eventually be worth when a CEO receives the stock or cashes in the
options.
Meanwhile, pay for workers
grew 3 percent in 2010, to an average of about $40,500. The percentage
increase was twice the rate of inflation, but the average wage was less
than one-half of one percent of what the typical CEO in the AP analysis
made.
Some critics of today's
executive pay say boards should consider how much a CEO has accumulated
over the years when they set the next year's pay.
"Boards need to recognize
that many CEOs already have enough in terms of motivation and lifetime
wealth," says Jesse Brill, chair of the website CompensationStandards.com
and an expert on CEO pay. "It is very frustrating to see boards keep
giving them more."
As evidence, Brill points to
stock and options given to CEOs the past two years. Boards at most
companies grant those awards early in the year. In 2009, most were granted
just as the stock market neared its lowest point in 12 years; today they
are worth $2.2 billion more than the companies thought they would be over
the lifetime of the grants.
Then in 2010, CEOs in the AP
analysis received another batch of stock and options. Those have already
gained about $400 million in value on paper, based on current market
prices.
"The pendulum has swung back
enough for many executives," says Doug Friske, an executive-compensation
consultant at the firm Towers Watson. "Now boards are going to have to
think about what they are going to do from here."
Their decisions will be
watched closely by shareholders. Government rules passed last year require
almost every public company to give investors a vote at least once every
three years on what it pays its executives. The votes aren't binding, but
they can draw unwanted attention to a CEO's pay.
So far this year,
shareholders at only 12 companies have voted against pay plans. The low
number reflects the fact that many institutional investors, such as mutual
funds, tend to side with management on shareholder proposals.
One company whose
shareholders voted against the pay plan was Stanley Black & Decker. In
2010, it gave CEO John Lundgren compensation valued at $32.6 million,
which made him the sixth-highest-paid on the AP's list. His pay included a
one-time grant of 325,000 shares of stock valued at $18.7 million.
Institutional Shareholder
Services, which advises large investors on how to vote on corporate
matters, had criticized Stanley Black & Decker for paying its executives
better than competitors pay theirs and for its one-time stock awards.
Companies that get negative
votes on their pay plans will have to disclose, in the statements they
file with regulators the next year, how the vote affected their decisions
on pay. So in 2012, Stanley Black & Decker will have to say whether it
changed Lundgren's pay because of the negative vote.
"They don't have to make any
changes to their pay plans, but they have to disclose what they did to
respond to the negative vote, which could be nothing," says Mark Borges, a
principal at the compensation consulting firm Compensia.
Some companies are doing
what they can to prevent an embarrassing "no" vote. Last month, General
Electric revised the terms on 2 million stock options granted to CEO Jeff
Immelt in 2010. The changes came after GE was criticized by ISS.
Under the original terms of
the grant, Immelt, 55, simply had to stay at GE until 2013 to get half the
stock options and until 2015 to get the other half.
Now, he can't exercise any
of the options until 2015, and they depend on performance targets. For
Immelt to get half the options, GE has to improve its cash flow, and for
him to get the other half, the stock has to outperform the market.
"Shareholders don't have any
tools at the moment to force companies to make changes in pay, but there
are plenty of companies making changes because they don't want the
attention of a negative vote," Borges says.