With proxy season in full bloom, companies are disclosing compensation payouts en masse. Depending on reporting methodology, the aggregate payouts and gains from stock and stock options that provide year-over-year compensation comparisons can vary widely.
USA TODAY's analysis of Standard & Poor's 500 companies headed by the same CEO the past two fiscal years shows 2013 median pay — including salary, bonus, incentive awards, perks and gains from vested shares and exercised stock options — jumped 13% to $10.5 million, a level buoyed by soaring stock prices that's likely to rise as more companies meet annual Securities and Exchange Commission filing deadlines.
Facebook CEO Mark Zuckerberg(Photo: Kim White, Bloomberg)
An examination of a broader spectrum of companies filing proxy statements filed through April 3 found far bigger compensation gains among top executives, up to $3.3 billion for Facebook's hoodie-loving co-founder, Mark Zuckerberg. Moreover, unlike past years when huge compensation gains were concentrated among a few sectors, pay kings reign far from the deep-pocketed realms of Wall Street and Silicon Valley, including Starbucks CEO Howard Schultz, Discovery Communications' David Zaslav and Jim Gallogly, head of petrochemicals manufacturer LyondellBasell.
Coming in a year in which corporate earnings gains continue to come mostly from job cuts and streamlining instead of organic growth, as well as! nearly a decade of stagnant wage growth for rank-and-file workers, continued gains in CEO pay underscore the disconnect between boardrooms and Main Street. Among the nation's 104.8 million full-time workers, average median annual wages were $40,872 last year, up just 1.4% over 2012.
"The extremes are getting bigger and run smack dab into the debate of income inequality,'' says veteran compensation consultant Alan Johnson. "Board
Behind the biggest scores: employment contracts, benevolent corporate boards and of course, Wall Street's bull market, which continues to elevate the value of stock options and restricted shares, many issued at depressed pre- and post-recession-era prices, that vested or were cashed in last year.s are quite concerned over how executive compensation will be perceived. There's very little of, 'Let's make Mr. Big happy because we're all friends and he's a nice man.' But you try to balance what's competitive. I tell boards that their primary goal is to do what's best for shareholders. If a CEO has created shareholder value, whether they're good or lucky, and things look like they're going to go well, you're probably going to have to pay a lot."
"The stock market's rebound has created a massive wealth effect, and the speed with which people can amass hundreds of millions of dollars is accelerating," notes long-time corporate compensation analyst Paul Hodgson, who says 2013's batch of publicly held company mega-earners may be the largest since the 2008 financial crisis crippled Wall Street and corporate earnings.
To be sure, the biggest scores were racked up by company founders, led by Zuckerberg's haul, a year after the Harvard University dropout cashed in stock options for $2.3 billion.
Another repeat winner, Starbucks' founder Schultz, received compensation valued at $163 million, including more than $128 million from exercising stock options, after pulling about $142.5 million in 2012. That doesn't include a 2013 $193 million payout from def! erred sha! res and dividends that Starbucks says is from a 1992 equity grant.
Other returning $100 million clubbers include Oracle billionaire Larry Ellison, who received compensation valued at $78.4 million and gained another $151.4 million exercising previously awarded stock options, and Google Executive Chairman Eric Schmidt, who received $19.3 million in 2013 compensation and gained $28.2 million from vested shares. In February, Schmidt received $100 million in restricted shares "in recognition of his contributions to Google's (2013) performance." Google awarded Schmidt an earlier $100 million stock grant when he stepped down as CEO in 2011.
Walt Disney valued CEO Robert Iger's compensation at $34.3 million, down from $37.1 million in 2012. But gains from shares that vested, and previously awarded stock options exercised last year, reaped another $72.4 million.
Viacom CEO Philippe Dauman(Photo: Dario Acosta)
Among other entertainment industry executives, Viacom's Philippe Dauman received compensation valued at more than $148.3 million, while Senior Vice President Tom Dooley's compensation and stock gains were valued at $117.8 million. Discovery Communications' Zaslav received compensation and gains from previous equity awards valued at about $118.6 million, including $58.7 million in gains from previously issued stock options, and $26.6 million from vested shares.
Zuckerberg's bonanza aside, executives at publicly traded private-equity firms — several of whom pocketed billions in the leveraged-buyout era that fueled mergers and acquisitions in the 1980s — were 2013's biggest winners.
Apollo Global's Leon Black received $546 million, including nearly $370 million in dividend pay! ments and! about $177 million in other payments. Co-founders Josh Harris and Marc Rowan got nearly $397 million and $366 million. Stephen Schwarzman, co-founder of investment firm Blackstone Group, received more than $465 million in compensation, dividends and other payouts — more than double his $229 million 2012 compensation.
KKR co-CEOs Henry Kravis and cousin George Roberts each received more than $160 million in dividends and other compensation. Kravis received about $161 million; Roberts, $165 million.
Among other members of the $100 million-plus club, Gilead Sciences' John Martin pulled in compensation valued at $179.2 million, nearly $159 million from exercising previously awarded stock options, $4.9 million from vested shares and $15.5 million in pay, incentives and equity awards, nearly double the $95.8 million the biotech firm says Martin pulled in the prior year.
Salesforce.com co-founder and CEO Marc Benioff pulled in compensation, incentive pay, equity awards and perks valued at $22.1 million plus $106.3 million in gains from exercising stock options. And Paul Bisaro, CEO of pharmaceutical company Actavis, gained $107.8 million from vested shares and exercising stock options on top of compensation valued at $11.4 million.
LynondellBasell said Gallogyreceived compensation valued at $106 million, including a $73 million gain from a 2010 stock grant that vested in 2013. Ameriprise Financial's Jim Cracchiolo barely missed the $100 million club, with compensation valued at $20.4 million and about $79 million in gains from exercised stock options and vested shares.
Short-timers, retirees and the soon-to-be-departed also scored, albeit on a smaller but still impressive scale.
Time Warner Cable CEO Robert Marcus — on the job just six weeks when cable-TV rival Comcast offered a $45 billion buyout — stands to pocket nearly $80 million in severance, vesting equities and supplemental bonuses.
Discovery Communications founder and board Chairman John Hendricks! , who ret! ires next month, pulled in compensation valued at $94 million, including $7.8 million in pay, incentives and other compensation, plus option gains valued at $86 million, up from $32.9 million in 2012.
Outgoing Stanley Black & Decker Executive Chairman Nolan Archibald got compensation and gains from stock and options valued at more than $130 million, including a $51.7 million "synergy bonus" based on "cost synergies" realized from the 2010 merger with Stanley Toolworks, a payout that's drawn scrutiny for its parameters and size.
"A lot of his compensation was baked in years ago, and it comes as a surprise when it turns up. But this is pushing it,'' says Ralph Ward of the Boardroom Insider newsletter.
Apple CEO Tim Cook(Photo: Marcio Jose Sanchez, AP)
Factoring in vested stock awards and options exercised last year, dozens of other CEOs pulled in well over twice the median CEO compensation. Apple's Tim Cook received $4.3 million in pay and incentives. He was also able to take ownership of part of the $376.2 million restricted stock grant he received in 2011 for a $69.6 million gain.
Chipotle founder and co-CEO Steve Ells pulled in compensation valued at $25.1 million, plus $62.1 million in gains from vested shares and exercising stock options. The fast-food chain valued co-CEO Monty Moran's compensation, stock and options gains at nearly $46.5 million.
Industrial products maker Honeywell International valued CEO David Cote's compensation at about $25.4 million. He gained another $30.3 million exercising stock options. Danaher's Lawrence Culp received compensation valued at $19.7 million, gaining another $20.7 million from vested shares and exercising previously awarded stock options. Sporting eq! uipment m! anufacturer Brunswick's Dustan McCoy's compensation was valued at $8.3 million. He gained nearly $56 million exercising stock options and from vested shares.
Executives at companies you probably never heard of also scored big. Selim Bassoul, CEO of Middleby Corp.,an Illinois-based restaurant equipment supplier, made about $9 million in pay, incentives and perks. Stock options and vested shares boosted his 2013 compensation another $50.4 million. And Mednax, a medical care provider, paid CEO Roger Medel $8.8 million in compensation. Medel gained another $42 million from vested shares and stock options.
There's been increasing scrutiny and complaining by shareholder activists who've forced companies such as Occidental Petroleum to revamp compensation plans and CEOs such as McKesson's John Hammergren to cut his pension from $159 million to $114 million. But scores of long-tenured executives who've accumulated years of deferred compensation, supplemental retirement pay, substantial stock holdings and other benefits are likely to receive massive payoffs in the next several years.
"For a lot of companies, the pensions being amassed are enormous; there's a huge amount of money on top of all the stock and options profits CEOs have made during their tenure,'' says Hodgson.
No one should shed tears for Hammergren giving up $45 million in pension benefits. McKesson, a pharmaceutical products distributor, valued his 2013 compensation at $27.5 million and said he gained another $34.2 million from vested shares and exercising stock options.
Say-on-pay shareholder votes — which are non-binding — have boosted awareness on executive compensation plans since 2011. But shareholders voted down just one compensation plan in 2013, medical-imaging company Hologic's, according to compensation consultant Towers Watson. That's due partly to the heady gains of many stocks. The Standard & Poor's 500 Index surged 32% last year.
Say-on-pay votes could be swayed by a Securities and Ex! change Co! mmission proposal that would require companies to disclose the pay ratio between CEOs and average workers. But the proposal, part of the Dodd-Frank overhaul of financial markets, was first floated in 2010 and continues to be opposed by companies who say the information would be too difficult and expensive to calculate. Towers Watson says the proposal isn't likely to be included in proxy statements until 2016.
More bothersome, to some corporate watchdogs, are the sense-of-entitlement perks bestowed on executive that are often masked by excessive pay and stock gains, such as personal use of the corporate plane, financial and tax planning, executive medical checkups, car allowances and country club memberships. The median value of CEO perks was $183,841, but some executives are running up far bigger tabs for travel, security, even legal bills.
J.C. Penney's Mike Ullman, who replaced ousted CEO Ron Johnson last April, ran up more than $900,000 for personal use of corporate aircraft, another $10,000 for financial counseling, and $8,200 for home security. Oracle covered more than $1.5 million in security costs for Ellison's home and $3,000 for legal expenses tied to his personal campaign contributions.
Although some companies, such as St. Jude Medical, eliminated the quaint, kid-style CEO cash allowance in December, the perk remains in vogue at several companies. Ameriprise Financial's Cracchiolo, for example, gets a $35,000 annual allowance. Allergan CEO David Pyott, who received compensation valued at $11.6 million last year, gets an annual perk payment of $20,000 — on top of an annual tax and planning allowance of $20,000 and $1,000 for an annual physical.
Beverage marketer Dr Pepper Snapple Group pays out up to $24,000 in annual "executive service allowances,'' on top of automobile allowances of up to $35,000. CEO Larry Young received compensation valued at $9 million and had stock and options gains valued at more than $6.2 million.
"They can pay for everything the need w! ith just ! their salaries,'' says Hodgson. "It's the height of redundancy."
Michelle Leder, whose Footnoted.org website tracks compensation and often odd executive perks typically ignored by shareholder activists and the mainstream financial press, is more troubled with the pervasive personal use of corporate aircraft. The six-figure fees frequently cited in corporate proxies are based on the cost of first-class commercial airline tickets, not the actual cost of flying and maintaining private jets, Leder says.
"Companies really fudge on this; there is no accounting for the cost in any realistic way,'' Leder says. "But this is the prima donna effect. If the CEO is used to unfettered access to the corporate jet, it's hard to take that toy away. As a shareholder, am I going to complain? The rising stock market can certainly help sooth any pain or discomfort."
Contributing: Mark Hannan
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