Average CEO pay is 430 times the average worker's and 10 times what it was in 1980, although companies are starting to hear investors' plea to link leaders' pay to performance.
By ASSOCIATED PRESS
Published April 20, 2006
More companies are listening to investors' criticism that they overpay chief executives, but that doesn't mean businesses have fixed the problem.
CEO pay continued to climb in 2005, although not nearly as rapidly as in recent years, new surveys show. The median pay for CEOs rose 11.3 percent, according to a survey of more than 550 companies by the Corporate Library, a governance firm.
For CEOs at the largest firms, however, pay rose 3.7 percent to a median of $5.2-million.
But the size of the typical CEO's raise varied greatly by which companies were counted, and figures obscure wide variations in pay. A closer look at individual companies shows that more than one in four granted their CEOs raises of at least 25 percent, according to a survey of nearly 200 large firms by compensation analyst Equilar Inc.
The newest raises for top executives mean the pay of the average CEO at a Standard & Poor's 500 firm is 430 times that of the average U.S. worker and more than 10 times what it was in 1980, said the AFL-CIO.
Once again, the largest payouts went to CEOs cashing in huge numbers of stock options.
Tops on that list was Richard Fairbank, chairman and chief executive of credit card issuer Capital One Financial Corp. Fairbank, who earned no salary or bonus, was paid in a grant of new options this year, valued at just more than $18-million. That paled, however, with the $249.3-million Fairbank earned last year by exercising previously issued options.
The list of those who profited most handsomely from cashing in options included Bruce Karatz, CEO of builder KB Home Inc., who pocketed $118.4-million.
In many cases, such gains went to executives who have held on to options for years, waiting for their stock price to rebound. In the past few years, many companies have cut back on the options they issue, moving to restricted stock and long-term incentive payouts.
The days of huge options payouts are hardly over. More than 80 percent of large companies include options in CEO compensation. But gauging the suitability of CEO pay packages increasingly requires investors and directors to focus on the size of future grants, rather than leftovers from the past, compensation experts say.
And even as more companies embrace changes designed to link CEO pay to executives' ability to deliver results over time, serious disconnects remain, experts say.
"I think some of the companies are trying to improve the situation," said Paul Hodgson, a Corporate Library compensation expert. "To be honest, if I can figure it out, I don't see why people who are leading some of the largest companies in the country shouldn't be able to figure it out as well."
The slow pace of change means some companies continue to pay CEOs far out of proportion to the results they deliver to shareholders, experts say.
For example, AT&T Inc. - until recently known as SBC Communications Inc. - paid CEO Edward Whitacre $17.1-million last year, a 15 percent increase. That raise brought his pay over the past five years to more than $85-million, despite the fact that shareholder return - the potential gain to investors who own its stock - is down 40 percent over that period, according to Hodgson's firm.
However, investor irritation over excessive pay is not dissipating despite the rebound in the stock market and the ebbing of corporate scandals. Nine of 10 institutional investors surveyed by consulting firm Watson Wyatt Worldwide said U.S. companies rely on methods that dramatically overpay executives.
U.S. investors singled out executive compensation as their top concern over the next three years, according to a survey by ISS to be released this week.
"We believe more comprehensive disclosures will provide a powerful deterrent against outlandish pay packages," said Coleman Stipanovich, executive director of the State Board of Administration, which manages Florida's public employee pension plan. He sent the SEC a 10-page letter this month supporting stronger disclosure. "If shareholders can reduce outsized compensation levels while at the same time improve alignment and long-term incentives, the effect on firm value can be material."
Although greater disclosure is certainly coming, the SEC has to vote on the rules, determining just how strict they will be.
Stipanovich said the board is particularly supportive of proposed rules requiring disclosure of retirement benefits and a total compensation figure, as well as disclosure of compensation for the chief financial officer and up to three highly paid nonofficer employees.
Times staff writer Helen Huntley contributed to this report.
