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USA
Today...
CEO pay soars while
workers’ pay stalls
By Matt Krantz and Barbara Hansen
The heads of the nation’s top companies got the biggest raises in
recent memory last year after taking a hiatus during the recession.
At a time most employees can barely remember their last substantial
raise, median CEO pay jumped 27% in 2010 as the executives’
compensation started working its way back to prerecession levels, a USA
TODAY analysis of data from GovernanceMetrics International found.
Workers in private industry, meanwhile, saw their compensation grow
just 2.1% in the 12 months ended December 2010, says the Bureau of
Labor Statistics.
Two years of scaling back amid tough economic times proved temporary as
three-quarters of CEOs got raises in 2010 — and, in many cases, the
increases were substantial.
The sizable pay hikes came even though the economy’s recovery remains
frail, unemployment is high and corporate profits last year were
roughly flat, up 1.5%, from where they were in 2007 when the stock
market peaked.
Says Kevin Murphy, professor of finance at the University of Southern
California, “We have the recipe for controversy over CEO pay: big
increases in CEO pay that show up following run-ups in stock prices
coupled with high unemployment rates.”
Taking a look at trends
show that in 2010, CEO pay:
•Climbed back toward prerecession levels. Median CEO pay in 2010 was
$9.0 million, based on 158 Standard & Poor’s 500 index companies
with the same CEO serving all of 2009 and 2010 that have reported CEO
pay, according to the USA TODAY analysis of data from GovernanceMetrics
based on proxies that have already been filed.
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 $8.6 million. That’s the most
CEOs have pulled down since the median of $9.2 million in 2007,
according to GovernanceMetrics’ analysis of S&P 500 companies.
•Bounced back in a big way. CEOs’ 2010 median pay jumped 27% from $7.1
million in 2009, one of the largest increases in recent history. The
jump was a complete reversal from 2009 and 2008, when most CEOs took a
pay haircut. The growth in CEOs’ median pay topped the median 21% total
return that investors would have collected if they owned shares of the
companies in the compensation analysis.
•Delivered big bonuses. CEOs received a median of $2.2 million from
bonuses, up 47% from $1.5 million in 2009. And that comes on top of a
healthy 7% boost to the median salary, which is now $1.1 million.
•Set up for an even bigger payday in the future. CEOs saw the estimated
future value of stock and options awards take off in 2010, with the
median value gaining 32% to $5.6 million. These stock and options, many
of which were granted when stock prices were much lower than they are
now, stand to create a shower of wealth when CEOs cash them in.
Tough to swallow while
jobless struggle
The big increases in executive compensation are difficult for workers
to swallow, given that many Americans are struggling just trying to
find a job or make ends meet, says Alan Johnson of executive pay
consulting firm Johnson Associates. “The fact this makes us all squirm
is true.”
Still, part of the massive increase in CEO pay is a distortion, Johnson
says. Because CEO pay fell the past two years, the recovery looks more
dramatic. “If you drop a lot, when you come back, it’s a big
percentage.”
And even though CEO pay is increasing, it’s still below 2007 levels.
“Given the years of pay decreasing, there’s a certain amount of
catch-up to get pay back to where it was in 2007,” says Paul Hodgson of
GovernanceMetrics.
Also, the rising stock market was one of the biggest drivers of CEOs’
hefty windfall in 2010, says William Lazonick, professor at the
University of Massachusetts. Given the fact the S&P 500 jumped
12.8% in 2010 and capped a two-year gain of 39.3%, shares and options
many companies awarded their CEOs wound up being very valuable. Many
CEOs receive roughly the same number of shares or options each year, so
when the value of those shares rises, so do pay packages, says Richard
Wagner of Strategic Compensation Research Associates.
Gains come from cost cuts
and layoffs
Yet the fact that CEOs’ pay is rising along with stock prices
underscores the disconnect between pay and companies’ true underlying
performance, Lazonick says. While companies in the S&P 500 boosted
profit 47% last year, much of that was due to cost-cutting and layoffs,
not from the creation of businesses and growth, Lazonick says.
Revenue, a gauge of the money flowing into businesses for selling goods
and services, grew at a much slower pace than profit — and ended the
year up just 7%.
Median pay, of course, just tells you the midpoint where half of CEOs
earned more and the other half less. Focusing on that obscures what
have been some of the biggest paydays received by CEOs this year:
•The highest paid of the CEOs analyzed by USA TODAY was Philippe
Dauman, CEO of Viacom. Dauman was paid $84.5 million, which was not
only a 149% increase from 2009, but 11% greater than the No. 2 on the
list, Ray Irani of Occidental Petroleum. Viacom’s board awarded Dauman
the pay, including the “significant one-time equity awards” for several
reasons, including “Mr. Dauman’s leadership and performance during his
tenure (he’s been CEO since 2006) at Viacom, and particularly during
one of the most difficult economic environments in our history,”
according to the company’s regulatory filing.
Read the rest of the story at USA Today
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