More backlash about resurgent executive comp

News Brief

By Cydney Posner

The pummeling of executive comp has continued over the last few days.  A New York Times article, headlined "We Knew They Got Raises. But This?," reports on a study by Equilar, commissioned by the NYT, which shows that the median pay for top executives at "200 big companies" last year was $10.8 million, representing a 23% increase from 2009. The author comments that, "despite the soft economy, weak home prices and persistently high unemployment, some top executives are already making more than they were before the economy soured." According to the article, one reason pay "skyrocketed" was the return of cash bonuses (as opposed to option grants), which jumped by 38%. Cash bonuses for the highest-paid CEOs were "at three times prerecession levels…." Compare that to the average American worker, who, the article reports, received just a 0.5% increase, an amount that represents an actual decrease in pay post-inflation. Moreover, many executives were granted stock options at low market prices in 2008 and 2009 and, now that the market has recovered, "are sitting on windfall profits, at least on paper." The article notes that some executives have accepted only token salaries, but have done extremely well on the basis of their ownership stakes in their companies.

While these numbers may reflect some "make-up" pay for the last couple of leaner years, corporate watchdogs are apparently concerned that the high levels of executive pay mean that "companies have already forgotten the lessons of the bust. Boards have promised to tie executive pay to company success, but by some measures pay is rising faster than performance. The median pay raise for chief executives last year — 23 percent — was roughly in line with the increase in net corporate profits. But it far exceeded the median gain in shareholders' total return, which was 16 percent, as well as the median gain in revenue, which was 7 percent."

So far, say-on-pay votes have been overwhelmingly in favor of management's compensation proposals. However, compensation experts contend that companies are taking the votes seriously. In some cases, prospective votes have led companies to eliminate excessive perks, such as tax gross-ups.  According to an ISS representative, "[c]ompany directors have the power to rein in runaway executive pay, but it is unclear whether either they or shareholders will do so in 2012. ‘It can be done if there is the will.'"

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