Tuesday, May 31, 2016

Top C.E.O. Pay Fell — Yes, Fell — in 2015 -- Note for a dicussion, "E Pluribus Unum? What Keeps the United States United."

By DAVID GELLES MAY 27, 2016, New York Times

"And Mr. Khosrowshahi of Expedia, the lucky
high earner of 2015 according to Equilar, had compensation of $94.6 million.
(Mr. Khosrowshahi is a director of The New York Times Company.) "

A mere $19.3 million.

That’s how much compensation Wells Fargo’s chief executive, John G.
Stumpf, was awarded last year, making him perfectly representative of the
best-­paid chief executives in the country.

Among the 200 highest­-paid chief executives at American companies with
annual revenue of at least $1 billion that filed proxies by April 30, the average
pay was, give or take a few thousand dollars, equivalent to Mr. Stumpf’s own: a
cool $19.3 million.

Yet by the topsy-­turvy standards of corporate pay, what’s remarkable is
not how big that number is, but how small.

After years of steady increases, the average compensation among the top
executives in 2015 was down 15 percent from the 2014 figure of $22.6 million,
according to the Equilar 200 Highest-­Paid C.E.O. Rankings, conducted for The
New York Times.

By other measures, too, chief executive compensation declined. Cash and
stock awards, the main components of pay packages, fell last year. Among the
companies in the Equilar 200, the biggest pay package, worth $94.6 million,
went to Dara Khosrowshahi of Expedia. That meant that for the first time
since 2012 no company in the rankings awarded its chief more than $100

All of which raises a tantalizing prospect: Has executive pay finally
peaked? Have the C.E.O.s and the compensation committees that set their pay
discovered something approaching modesty?

Some experts say that is the case. “We’re hearing a great deal more
concern from compensation committee chairs about absolute pay,” said
Kenneth Daly, chief executive of the National Association of Corporate
Directors, a trade group for board members. “They seem to have a lot more
steel in their backs.”

Maybe. What is certain is that last year’s weak stock market pulled down
the value of executive pay packages. After posting fairly consistent gains for
years, the Standard & Poor’s 500­-stock index and the Dow Jones industrial
average each fell slightly in 2015. Because the average compensation package
was 69 percent stock, lower share prices meant less pay for C.E.O.s.

But the relation between pay and performance remains tenuous at best.
Some executives’ pay fell, despite gains in the price of shares of their
companies. And several C.E.O.s reaped huge windfalls, even while presiding
over precipitous declines in total shareholder return.

Take Philippe Dauman, the embattled chief of the media conglomerate
Viacom. Mr. Dauman was awarded $54.1 million last year, a 22 percent raise
from 2014. Over the year, Viacom shares plunged 43 percent.

Or consider Stephen A. Wynn, the Las Vegas casino magnate. Using the
Equilar criteria, he made $20.7 million as C.E.O. of Wynn Resorts last year,
down 19 percent from 2014. That may seem like an appropriate haircut in a
difficult year, but his shareholders fared even worse. Shares of Wynn Resorts
plunged 54 percent, wiping out half the company’s value. Total shareholder
return, which includes dividends, was down almost as much, at 51 percent.

Such flagrant disparities — chief executives are paid tens of millions of
dollars for running troubled companies — rile critics.

“Moral outrage is the right term,” said Heather Slavkin Corzo, director of
the A.F.L.­C.I.O.’s investment office. “The rules of our economy have been
written to allow the rich and powerful to keep getting richer and more
powerful, while the rest of us are fighting for the scraps. It’s reprehensible.”

Political Fodder

Presidential candidates are talking about high C.E.O. pay in equally
charged terms. For Democrats and Republicans alike, stagnant wages and
income inequality have emerged as reliable rallying cries. The sentiments that
fueled the Occupy Wall Street movement and were given academic heft
through the work of the French economist Thomas Piketty have become
talking points for Bernie Sanders, Hillary Clinton and Donald J. Trump.

“The inequality movement has created a whole backlash against C.E.O.
pay,” said Alan Johnson, managing director of Johnson Associates, a
compensation consulting firm.

Weighing in on Verizon’s labor dispute, Senator Sanders, an avowed
socialist, took a shot at the company’s chief executive, Lowell McAdam, who
made $18.3 million last year.

“When the C.E.O. of a company makes almost $20 million a year but then
tries to outsource jobs, reduce wages and cut health benefits — that’s the kind
of corporate greed we need to get rid of in America,” Mr. Sanders’s campaign
wrote in an email to supporters recently. “And that’s exactly what Verizon is
doing right now.”

Starting her campaign last year, Mrs. Clinton contrasted working
Americans with chief executives. “Families have fought their way back from
tough economic times,” she wrote in a campaign email. “But it’s not enough —
not when the average C.E.O. makes about 300 times what the average worker

No less than Mr. Trump, the presumptive Republican nominee and a wealthy
businessman himself, suggested that executive pay was, in some instances,
excessive. “You see these guys making these enormous amounts of money,”
Mr. Trump said on “Face the Nation” last year. “It’s a total and complete joke.”

The presidential contenders are responding to a sense of outrage among
many working­-class men and women.

“In the wealthiest country in the history of the world, it should be a no-brainer
that someone who works full time should be able to support their
family and send their children to school,” Ms. Slavkin Corzo said. “This type of
wealth inequality has dangerous ramifications for our economy over all. It’s

That sentiment resonates beyond the picket lines. Even Mr. Johnson, who
is paid to advise companies on pay, said things had gotten out of hand. “I wish
all C.E.O.s were paid less money,” he said. “I think they’re paid too much from
a moral standpoint, but it is a competitive market.”

Creeping Higher

Several factors account for big paydays at the highest reaches of corporate
America, among them the ease with which companies can give away stock, and
chummy board members who reward their friends.

But another driver of high pay is the practice of bench-marking a chief
executive’s compensation against that of others in a so­-called peer group.

“Companies are accustomed to bench-marking against other companies in
their industries,” said Andrew Goldstein, leader of the North American
executive compensation practice at Willis Towers Watson, a consultancy. “You
tend to get these clusters of compensation in these industry groups.” And
companies are prone to benchmark themselves against larger companies and
set pay at the high end of any range.

At First Data, a payments processor with a market value of about $11
billion that went public last year, the chief executive, Frank J. Bisignano, was
awarded $51.6 million in 2015, some of it tied to long­-term performance. The
board bench-marked his pay against 21 other companies it determined made
up First Data’s peer group.

But those companies tended to be much larger than First Data, with
average market values of about $37 billion. The peer group included Visa
($188 billion market cap), MasterCard ($104 billion market cap) and
Accenture ($77 billion market cap).

Yet despite First Data’s relatively small size, Mr. Bisignano, who joined
the company in 2013 after working at JPMorgan Chase, was awarded more
than any chief of the companies in his peer group. The closest was Kenneth
Chenault of American Express, who made $21.7 million, less than half of Mr.
Bisignano’s package. First Data declined to comment.

“Nobody wants to be in the bottom half,” Mr. Daly said. “So over time, the
average compensation in any group goes up.”

First Data may be an outlier in the payments industry. In other sectors of
the economy, however, specifically media and technology, enormous pay
packages have become the norm.

In 2014, the four chief executives reporting to the media mogul John
Malone were awarded a combined $358 million. Last year, those four men —
David M. Zaslav, Michael T. Fries, Gregory B. Maffei and Thomas M. Rutledge
— were still awarded $103.4 million.

Other media and technology chiefs picked up the slack. Sumner M.
Redstone has routinely bestowed great riches upon his lieutenants, Mr.
Dauman of Viacom, and Leslie Moonves, chief executive of CBS. Last year was
no exception.

Mr. Moonves was the second­-highest­-paid executive on the Equilar list,
with a package worth $56.4 million. Mr. Dauman was right behind him, with a
$54.1 million package that included a contract extension. They received this
compensation although CBS shares fell 16 percent last year, and Viacom’s
share performance was dismal.

It’s not clear how much longer Mr. Redstone’s largess will endure. He is
ailing, has publicly split with Mr. Dauman, and the futures of CBS and Viacom
are the subject of enormous speculation.

“Every year they get paid more than they should due to that unusual
governance situation,” said Steven N. Kaplan, a professor of finance at the
University of Chicago Booth School of Business, referring to Mr. Moonves and
Mr. Dauman. “Those guys may be going down once Sumner is gone.”

Should the pay of Mr. Dauman and Mr. Moonves fall in the coming years,
plenty of other media chiefs will still reap big rewards. Robert A. Iger of Walt
Disney was awarded $43.5 million last year, Jeffrey L. Bewkes of Time Warner
received $31.5 million, James E. Meyer of Sirius XM made $29.2 million, and
Brian L. Roberts of Comcast took in $27.5 million.

Technology company chiefs also did well. Marissa A. Mayer of Yahoo was
awarded $36 million. Marc Benioff, founder and chief executive of Salesforce,
received a $33.4 million package. And Mr. Khosrowshahi of Expedia, the lucky
high earner of 2015 according to Equilar, had compensation of $94.6 million.
(Mr. Khosrowshahi is a director of The New York Times Company.) His
package, reflecting a new five-­and­-a­-half-­year contract, was almost exclusively
stock that vests over time, so much of its value is closely linked to Expedia’s
share price.

Defenders of executive pay cite factors like those as evidence that
seemingly astronomical rewards really don’t add up to that much money. In a
statement, Sarah Gavin, an Expedia spokeswoman, said Mr. Khosrowshahi
“has been a transformational C.E.O. for Expedia,” adding that much of his
compensation was structured to give him “an additional incentive to create
long­-term shareholder value.”

All told, tech and media C.E.O.s made up 17 of the highest­-paid 30 spots
on Equilar’s list last year.

According to Bureau of Labor Statistics data compiled by the A.F.L.­
C.I.O., the average worker in the United States who doesn’t have management
responsibility earns $36,875 a year. By that measure, the average chief
executive on the Equilar list makes roughly 523 times the average worker

It’s not a perfect comparison. Executive pay includes stock grants, often
with multi-year payouts and performance targets, while low-­paid workers
rarely receive stock, let alone long­-term incentive packages. Nonetheless, the
discrepancy is stark. A bank teller at Wells Fargo making that average wage
would have to work more than half a millennium, until 2539, to earn what that
company’s chief executive, Mr. Stumpf, who made the average among chiefs
on the Equilar list, earned last year.

Incomplete as such ratios may be, chief executives will have to get used to
them. Starting in 2018, companies will be required to disclose the ratio of their
C.E.O.s’ pay to the median compensation of their employees. The Securities
and Exchange Commission will allow companies significant leeway when
interpreting their own data, which could keep ratios down.

In the interim, data from other sources offers a hint of what to expect.
PayScale, a company that makes enterprise software, has surveyed more than
80,000 workers about their pay. Using that data, it is possible to roughly
approximate ratios of the sort that the S.E.C. will soon require.

The biggest gap between C.E.O. and worker pay was at Expedia, where
Mr. Khosrowshahi made 993 times the median pay of his employees, as
reported to PayScale. That is not so surprising given Mr. Khosrowshahi’s
enormous multi-year contract. But it held true even with Expedia’s high
median salary of $95,300.

Perhaps more glaring was the discrepancy between the Walmart chief
executive, C. Douglas McMillon, who made $19.4 million, nearly the average
among the Equilar 200, and his workers, who reported a median salary of just
$24,600. Mr. McMillon thus made 789 times the income of his median
employee, using PayScale and Equilar data.

Walmart said it had raised wages for more than 1.2 million employees in
February. Mr. McMillon himself started as an hourly worker at Walmart and
the company said that most of his compensation was based on company

Such huge gulfs between worker and executive pay are a recent
phenomenon. According to an analysis by the Economic Policy Institute, a
research organization that focuses on labor issues, C.E.O.s of the top 350
American companies by sales made just 30 times what average workers in
their industries did in 1978. By 1989, chiefs were making 59 times what their
average workers made; by 2000, they were making 383 times what the average
workers made.

“It’s an eye-­popping number,” said Ms. Slavkin Corzo. “That means the
typical worker would have to work for hundreds of years to make what a
C.E.O. makes in one year.”

Eye­-popping as such numbers may be, compensation specialists don’t
expect the S.E.C.’s ratio rule to change these disparities very much. But Mr.
Johnson said it might embarrass retailers like Walmart. “It will throw another
log on the fire, but I don’t think it will have a huge impact,” he said.

Other Ways to Get Paid

Being the chief executive of a big publicly traded company isn’t the only
way to get paid these days.

Masimo, a small medical device company with a market value of just $2.4
billion and annual sales of about $630 million, saw fit to award its chief
executive, Joe Kiani, $119.2 million in cash and stock. Palo Alto Networks, an
enterprise technology company with just under $1 billion in sales, awarded its
chief executive, Mark D. McLaughlin, $66.6 million. And Paul J. Taubman, an
investment banker who recently took his firm, PJT Partners, public, received a
package composed almost entirely of stock worth $75.5 million. Because their
companies didn’t have $1 billion in sales, they were not included in the Equilar

A business leader does not even have to be a C.E.O. to make a fortune.
Lowly chief financial officers, chief operating officers and division heads are
also hauling in staggering pay packages.

When Google reorganized last year to become Alphabet, it placed Sundar
Pichai in charge of its search business. For taking control of the subsidiary,
called Google, he was awarded stock and cash worth $100.6 million.

Alphabet’s chief financial officer, Ruth Porat, who was recruited from
Morgan Stanley, was awarded $31.1 million. And Patrick Pichette, the
company’s departing chief financial officer, received a golden parachute worth
$56.6 million.

Among companies that gave lavish packages to chief executives, other
senior executives were also richly rewarded. At Viacom, Thomas E. Dooley, the
chief operating officer, was awarded $29.4 million. At Comcast, Michael J.
Cavanagh, the chief financial officer, received $40.6 million.

And at First Data, where Mr. Bisignano received the sixth­-highest total
compensation among chief executives last year, his deputies fared well, too.
Daniel Charron, executive vice president of global business solutions, was
awarded $24.8 million, while the total for Guy Chiarello, the company’s
president, was $20.6 million.

“These are very high numbers. Some people think it’s too much,” Mr.
Kaplan said. “But if you look at what people are making in the market —
technology and globalization have played into this — these are market rates.”

Yet the highest earners in the United States are not employees at public
companies encumbered by pesky compensation committees. They are hedge
fund managers like Kenneth C. Griffin, who runs Citadel and made $1.7 billion
last year. James Simons, founder of Renaissance Technologies, also earned
$1.7 billion in 2015.

Three other hedge fund managers — Ray Dalio of Bridgewater Associates,
David Tepper of Appaloosa Management and Israel Englander of Millennium
Management — each made more than $1 billion. Another three men made
$500 million or more.

The figures for hedge fund managers, compiled by Institutional Investor’s
Alpha magazine, take into account the money they have invested in their funds
as well as the fees they charge.

Together, the top 25 best­-paid hedge fund managers took in a combined
$13 billion last year.

Concentrated Wealth

On a case-­by­-case basis, large executive pay packages are easy to
understand. Big companies employ thousands of people and generate billions
in sales. Competition for top executive talent is intense, especially in today’s
global marketplace. From that perspective, Mr. Kaplan said: “In this day and
age, I don’t think they’re particularly overpaid.”

And chief executive pay declined in 2015, according to the Equilar 200,
which included companies with $1 billion in revenue, not $1 billion in market
capitalization, as was the case last year. Cash compensation fell to $6 million
on average, compared with $6.9 million in 2014, while stock and option
awards slumped to $13.3 million, down from $15.7 million in 2014. Some
executives with large stock holdings felt a twinge when their company’s share
price fell.

But it is too soon to call this decline a trend. In 2012, after years of steady
increases, average pay dipped 10 percent. What followed were two years of
strong gains, until last year. And for all the talk about measures designed to
incentivize long-­term performance, many chief executives took home
enormous cash bonuses, which do little to promote foresight. Mr. Moonves got
$23.7 million in cash, while Mr. Dauman received $18.3 million.

What is more, when executive compensation is compared with worker
salaries, today’s pay packages seem gargantuan.

Seen in this light, the compensation committees that set C.E.O. pay are
orchestrating a large-­scale transfer of wealth to a few hundred individuals —
most of them men, most of them white.

Previous efforts to rein in executive pay haven’t yielded many results. So-called
“say on pay measures,” which let investors voice their opinions on
executive pay, have had little effect. The S.E.C.’s pay ratio rule may make some
companies look bad, yet many analysts predict executive pay will continue the
trajectory it has followed for decades, climbing ever higher.

“The amount of power that we’ve allowed to be concentrated in the hands
of C.E.O.s is worrisome,” Ms. Slavkin Corzo said. “There is nobody out there
that has the power to put their thumb on the scale on the other direction.
There are lots of ways you can tweak around the edges, but at the end of the
day if you want change, it’s about changing the power structures in corporate

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