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April 7, 2012
In Executive Pay, a Rich Game of Thrones By NATASHA SINGER

IS any C.E.O. worth $1 million a day?

That’s roughly $42,000 an hour. Or $700 a minute. Or $12 a second.

Think of it this way: In the time it took to read those words, you could’ve
pocketed $100. Finish this article and — well, you do the math.

At Apple<http://topics.nytimes.com/top/news/business/companies/apple_computer_inc/index.html?inline=nyt-org>,
the answer to that question is an emphatic yes, and then some. Not since
Steve Jobs has a chief executive at Apple, or any other public American
corporation, for that matter, been as richly rewarded in stock as Timothy
D. Cook<http://topics.nytimes.com/top/reference/timestopics/people/c/timothy_cook/index.html?inline=nyt-per>,
who succeeded Mr. Jobs as chief executive last August, a few months before
Mr. Jobs died.

Mr. Cook was paid a cash salary of roughly $900,000 in 2011. On its own,
that would have been a ho-hum paycheck for a top American C.E.O. in recent
years.

But then came a wild extra, a one-time award, in the form of Apple stock.
It was initially worth a staggering $376.2 million. As of the end of last
week, it was valued at roughly $634 million, reflecting Apple’s soaring
share price.

Many credit Mr. Cook, along with Mr. Jobs, for Apple’s recent success. And
the company is quick to note that Mr. Cook’s pay package extends over 10
years. One-half of his stock is scheduled to vest in 2016, and the other in
2021, provided that Mr. Cook still works for Apple. And, at a time when
some investors seethe over far smaller paychecks — a mere eight figures is
relatively commonplace for top chief executives these days — Apple’s
shareholders are hardly up in arms over the magnitude of Mr. Cook’s reward.
To the contrary, a vast majority voted in favor of it.

Of course, most of us can’t begin to wrap our heads around pay figures like
these. An American with a bachelor’s degree, after all, typically makes
$2.3 million, not in a year, but over a lifetime, according to a recent
study from Georgetown
University<http://www9.georgetown.edu/grad/gppi/hpi/cew/pdfs/collegepayoff-summary.pdf>.


Data on C.E.O. compensation in 2011, albeit preliminary, confirm what many
of us already know: the top brass generally do much, much better than the
rest of us, whether times are good or bad. After the ups and downs of the
recent boom-bust years, pay among the 100 best-paid chief executives at big
American corporations held fairly steady in 2011, according to
Equilar<http://www.equilar.com/>,
which reviewed C.E.O. compensation for The New York Times. Here are some
numbers worth knowing:

• Among the 100 top-paid C.E.O.s, overall pay last year rose a scant 2
percent from 2010.

• The median chief executive in this group took home $14.4 million —
compared with the average annual American salary of
$45,230<http://www.bls.gov/oes/current/oes_nat.htm>.


• In all, the combined compensation of these 100 C.E.O.s totaled $2.1
billion, the rough equivalent of the estimated annual economic output of
Sierra Leone<https://www.cia.gov/library/publications/the-world-factbook/geos/sl.html>.


The full picture won’t become clear until June or so, when corporate proxy
statements will detail the full range of executive
compensation<http://topics.nytimes.com/top/reference/timestopics/subjects/e/executive_pay/index.html?inline=nyt-classifier>.
But data available as of March 30 suggests that a new elite is emerging in
corporate America: C.E.O.’s who make $10 million-plus a year.

Granted, these are chief executives of publicly traded companies, the kind
of businesses anyone can buy into on the stock market. Next to pay in the
rarefied realms of private American capitalism — the multitrillion-dollar
world of hedge funds, private
equity<http://topics.nytimes.com/top/reference/timestopics/subjects/p/private_equity/index.html?inline=nyt-classifier>and
the like — these C.E.O.’s might seem like pikers. Top hedge fund
managers collectively earned $14.4
billion<http://dealbook.nytimes.com/2012/03/29/large-hedge-funds-fared-well-in-2011/>last
year.

But the Equilar figures also hint at the myriad ways executive compensation
is as tailored as a bespoke suit. It is those custom details — the one-off
huge stock grants, in Mr. Cook’s case, the token $1 annual salaries or
evaporating bonuses in others — that can turn dull proxy statements into
page-turners.

Mr. Cook is an extreme example of this phenomenon. He is, experts agree, an
outlier — the only chief executive on the Equilar list to pull down a
nine-figure paycheck. His stock award was so valuable, even at its initial
price, that his total compensation eclipsed that of the next nine C.E.O.’s
combined. Those nine included Lawrence J. Ellison of Oracle, at $77.6
million, a perennial on the best-paid list, and Philippe P. Dauman, of
Viacom, at $43.1 million.

Aaron Boyd, the director of research at Equilar, the executive compensation
data firm based in Redwood City, Calif., that has reviewed executive
compensation trends annually for Sunday Business, said Mr. Cook’s pay was
unique.

“The amount he got was historic to such a degree that it skews the
numbers,” Mr. Boyd said.

BUT Apple was not the only special case. Consider J. C. Penney, whose new
chief executive, Ronald B. Johnson, came in third on the top 100 list, with
total compensation of $53.3 million.

Why? Last year, Mr. Johnson left his position as senior vice president of
retail at Apple, along with Apple stock worth $101 million at the time that
had not yet vested. So, as part of his pay package, J.C. Penney gave Mr.
Johnson a one-time stock award worth $52.6 million. (As of the end of last
week, his Apple stock would have been worth about $159 million. His Penney
stock was worth $58 million.)

Last year’s other top earners included Stephen I. Chazen ($31.7 million) of
Occidental Petroleum; Gregory Q. Brown ($29.3 million) of Motorola
Solutions, and Howard D. Schultz ($16.1 million) of Starbucks.

Analysts say the uptick in C.E.O. pay is a sign that corporations are
returning to business as usual after the last
recession<http://topics.nytimes.com/top/reference/timestopics/subjects/r/recession_and_depression/index.html?inline=nyt-classifier>.
When the economy soured, executive pay fell sharply at many companies,
though not as much as many ordinary Americans might have hoped. With the
recovery in 2010, pay then skyrocketed. Now it’s stabilizing, suggesting,
perhaps, that corporate boards see more predictable economic times ahead.

“On average, pay levels have moderated,” said Doug Friske, the global head
of executive compensation consulting at Towers Watson, a human resource
consulting firm <http://www.towerswatson.com/> in New York. “Now we are
seeing normalization.”

Corporate boards also seem to be acknowledging criticism of executive pay
from shareholders and the public. Some companies have reduced discretionary
bonuses and linked executive pay more closely to performance metrics like
revenue and share price. Last year, companies also began to hold
shareholder votes on executive pay packages, so-called “say on pay” polls
required by Dodd-Frank<http://dealbook.nytimes.com/2011/01/25/s-e-c-adopts-say-on-pay-rules/>,
the Wall Street reform law.

Corporate America hasn’t entirely embraced reform. Some companies and
industry groups have asked the Securities and Exchange Commission to
jettison — or at least delay putting in
place<http://www.sec.gov/comments/df-title-ix/executive-compensation/executivecompensation-84.pdf>—
a provision in the Dodd-Frank law that would require companies to
disclose the ratio of C.E.O. pay to median employee pay, the kind of
statistic that could grab headlines in this era of the 1 percent.

The 100 highest earners of 2011 have one thing in common, however. Although
they could all rank among the 1 percent — households that bring in $380,000
or more<http://www.nytimes.com/2012/01/15/business/the-1-percent-paint-a-more-nuanced-portrait-of-the-rich.html>—
they actually belong in a more exclusive bracket: people with more
than
$10 million in pay.

But the C.E.O. wealth is hardly trickling down. During the 2010 recovery,
the top 1 percent captured 93 percent of the income gains, while the
incomes of the 99 percent essentially remained flat, according to a
study<http://bit.ly/xWBGLQ>by Emmanuel
Saez, an economics professor at the University of California,
Berkeley<http://bit.ly/1tGZnh>.


In 2011, the median weekly earnings for full-time wage and salary workers
in the United States rose only about 1 percent, to $756, from $747 in 2010,
according to data from the Bureau of Labor
Statistics<http://www.bls.gov/news.release/wkyeng.t07.htm>.
In constant dollars, wages fell a little more than 2 percent.

The C-suite and the shop floor have never been further apart, said Brandon
Rees, the deputy director of the A.F.L.-C.I.O. office of investment.

“American workers are having to make do with less,” Mr. Rees said, “while
C.E.O.s have never had it better.”

Equilar analyzed base salaries, cash bonuses, perks, stock awards and
options for the 100 most highly compensated executives at public companies
that had revenue of more than $5 billion and had filed their proxy
statements by March 30. (The study excluded severance pay, changes in
pension values and stock awarded in previous years that vested in 2011.)

One standout on the list was Vikram S. Pandit, the chief executive of
Citigroup. After the company was bailed out by taxpayers in 2009, Mr.
Pandit pledged to work
for<http://www.nytimes.com/2010/09/25/business/25citi.html>$1 a year
until the bank returned to profitability.

Citigroup has since repaid its bailout money, and the board has restored
Mr. Pandit’s pay. It amounted to $14.9 million last year, putting Mr.
Pandit in 45th place on Equilar’s list. Citigroup’s longtime shareholders
are still waiting for their payday: while the company’s net income rose 3
percent last year, Equilar said; its share price fell 44 percent.

New “say on pay” votes, though nonbinding, have caused some companies to
make a greater proportion of pay contingent on chief executives’
achievement of rigorous performance goals. Some companies have even
eliminated stock option awards — the grants of stock that executives are
able to buy at a fixed price — in favor of full-value stock awards that
vest only if executives meet specified goals, said Carol Bowie, head of
Americas research at Institutional Shareholder Services, a proxy consulting
firm for institutional investors.

“We are definitely seeing a trend toward more performance-based pay,” Ms.
Bowie said. “It remains to be seen if performance follows.”

At Hewlett-Packard, for instance, shareholders voted in March 2011 to
reject the company’s executive compensation plan. The board eventually
responded to criticism over the company’s multimillion-dollar executive
severance packages. The departure last year of Léo Apotheker, who had
served as C.E.O. for 11 months, for example, cost H.P. shareholders about
$30 million, according to a report from I.S.S.

When H.P.’s board subsequently chose Meg Whitman as the new C.E.O., it took
some steps to mollify shareholders by giving her a performance-based
compensation package. The board offered her a base salary of $1, no cash
bonus, no stock awards and a grant of options to purchase 1.9 million
shares of H.P. stock.

Although that amounted to compensation of about $16.5 million, ranking Ms.
Whitman 35th on the Equilar list, she will have to meet certain conditions
for all of the stock to vest. If she remains employed at H.P., she can
exercise her option to buy 100,000 shares each year for the next three
years. In addition, 800,000 shares will vest if H.P.’s share price
increases by 20 percent under her stewardship, and another 800,000 will
vest if the stock increases by 40 percent.

THE rest of the top earners list reads like an A-list of corporate titans,
from Robert A. Iger of Walt Disney, ranked seventh, with pay of $31.4
million, to William C. Weldon of Johnson & Johnson, ranked 13th, with $23.4
million. (Mr. Weldon plans to step down as chief later this
month<http://www.nytimes.com/2012/02/22/business/j-j-chief-to-resign-one-role.html>;
he will stay on as chairman.)

Rupert Murdoch of the News Corporation took 10th place, with compensation
of $29.4 million — a 75 percent increase from 2010. In a year when the News
Corporation and Mr. Murdoch’s son
James<http://www.nytimes.com/2012/04/04/world/europe/james-murdoch-steps-down-from-british-broadcaster.html>were
embroiled in a scandal over phone hacking, the elder Mr. Murdoch
earned a cash bonus of $12.5 million. That is because the company did well
financially, analysts said, even if its reputation plummeted.

“Financially, they exceeded their target,” said Mr. Boyd of Equilar. “But
from a publicity standpoint, News Corporation has taken a hit over the last
year and a half.”

Also among the top 10, David M. Cote, the chief executive of Honeywell,
received total compensation of $35.3 million, putting him in fifth place.
Honeywell tends to dole out a huge bonus every other year. Last year, Mr.
Cote’s bonus was $23.3 million.

Clarence P. Cazalot Jr., the chief executive of Marathon Oil, received
$29.9 million, an increase of 239 percent from the previous year. That put
him in eighth place. Mr. Cazalot received a cash bonus of $21.8 million,
the second-highest cash bonus, a majority of which came from accelerated
payouts for spinning off a company unit, the Marathon Petroleum
Corporation.

Next, Alan R. Mulally, who helped turn around Ford, took ninth place, with
compensation of $29.5 million. Although Ford’s share price fell nearly 36
percent last year, its net income increased 208 percent.

Elsewhere, Fabrizio Freda, the chief executive of the Estée Lauder
Companies, made a big leap. He ranked 18th on the Equilar list, up from
54th place on a comparable list in 2010. He received compensation of nearly
$21 million in 2011, a 51 percent increase. Mr. Freda is the first real
outsider — and only the second person outside the Lauder family — to run
the beauty products empire. Under his stewardship last year, Lauder’s net
income increased 47 percent, while its total shareholder return, the change
in share price plus dividends paid, increased 90 percent.

Taken alone, Mr. Freda’s compensation may seem high for a company with
revenue of nearly $9 billion, said Robin Ferracone, the executive
chairwoman and founder of Farient Advisors, an executive compensation and
performance consulting firm <http://www.farient.com/>. But, given the
company’s stellar performance and the fact that Lauder fits more in the
luxury goods category than the toiletries category, she said, his
compensation seemed appropriate.

“The high-fashion industry tends to pay more than the big industrials,” Ms.
Ferracone said. “It’s going to look fine to shareholders.”

BUT investors, among them employees with
401(k)<http://topics.nytimes.com/your-money/retirement/401ks-and-similar-plans/index.html?inline=nyt-classifier>plans,
may want additional information to gain more context about whether
executive pay packages are reasonable and appropriate.

The A.F.L.-C.I.O. has urged the S.E.C. to put into effect the provision in
Dodd-Frank requiring companies to disclose the ratio of chief executive pay
to their employees’ median pay. That would give shareholders insight into
compensation practices, said Mr. Rees of the labor federation, along with
the ability to compare it to those of other companies.

“It puts C.E.O. pay in perspective,” he said. “It’s material to investors.”

Don’t hold your breath. The requirement isn’t likely to come into effect
any time soon, because many companies have complained to the S.E.C. that it
would be a burden to comply with it, said Ms. Bowie of I.S.S.

“There’s been a lot of pushback from companies on that,” she said.

Mary L. Schapiro, the chairwoman of the S.E.C., said at a Congressional
hearing last month<http://www.cq.com/doc/congressionaltranscripts-4040705?wr=RDlYTlRja3lSajUyWkdKQm9TbzZ3dw>that
the commission was trying to work through “a lot of technical issues”
on how companies might calculate this.

The agency has not yet set a date for companies to comply, John Nester, a
spokesman for the S.E.C, said on Thursday.




-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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