The best-performing tier of CEOs received the lowest median
compensation in 2015
By Theo Francis and Joann S. Lublin
Median pay for chief executives of the biggest U.S. companies
slipped 4.6% last year, but the link between annual compensation
and shareholder returns remained weak.
A Wall Street Journal analysis of S&P 500 companies found
that none of the year's 10 highest-paid CEOs ran one of the 10
best-performing companies. Only three of those executives led a
company ranked among the top 10% in total shareholder return.
More broadly, the best-performing tier of CEOs in the analysis
received the lowest median compensation for the year, at $10.2
million.
There was little correlation between executive pay and annual
corporate performance, even within the same industry. In six
industries, including utilities and diversified financial services,
the year's top-paid CEOs ran the worst-performing companies. In
seven industries, including pharmaceuticals and retailing, the
lowest-paid CEOs ran the best performers.
In the longer term, pay and performance appear to be more
closely aligned. Over the past five years, shareholder return for
most S&P 500 companies has exceeded the growth in their CEOs'
pay, according to an analysis by ISS Corporate Solutions.
"Most companies do a pretty good job" of linking pay and
performance, says John Roe, head of advisory services at the
Institutional Shareholder Services unit. "Is there room to grow?
Yes."
Various factors can lead to a divergence between CEO pay and
annual corporate performance, compensation consultants say. Tough
times prompt some companies to reward executives for strategic or
operational overhauls. Others base pay on longer-term benchmarks
that might be little affected by a single year of
underperformance.
Overall, median compensation for S&P 500 CEOs fell to about
$11 million in 2015 from about $11.5 million in 2014, according to
the Journal's analysis of data from MyLogIQ. Last year's median
shareholder return, including dividends, was 1.3% for companies in
the analysis, compared with 18% the year before.
The top paid chief in the Journal's analysis was Dara
Khosrowshahi of internet travel company Expedia Inc. The
47-year-old executive received compensation of $94.6 million last
year, including $90.8 million in stock options that vest over the
next four years. That marked a sharp increase from the $9.6 million
he made in 2014, and was nine times what Apple Inc. paid Timothy
Cook last year.
Expedia, which is controlled by billionaire Barry Diller, said
the award is designed to keep its leader in the job over the long
term. "We have no intention of providing additional equity until
2020," said Expedia spokeswoman Sarah Gavin.
Mr. Khosrowshahi was followed by two chief executives in media
mogul Sumner Redstone's empire: Leslie Moonves of CBS Corp., at
$56.8 million, and Philippe Dauman of Viacom Inc., at $54.2
million. A power struggle at Viacom could imperil Mr. Dauman's
position.
Both CBS and Viacom lagged behind the median return for S&P
500 media companies, which was -3.8% last year. Shareholder return
was -13.8% for CBS, and -42% for Viacom.
In its proxy, Viacom says that about $17 million of Mr. Dauman's
pay is a stock-based bonus that vests over three years, awarded
with the nearly four-year renewal of his employment agreement in
January 2015; it can become more or less valuable with company
performance. A CBS spokesman declined to comment.
Rounding out the top five were Mark Hurd and Safra Catz, the
co-CEOs at software giant Oracle Corp., who received $53.2 million
apiece last year. Their pay included one-time equity awards of $9
million each, reflecting their expanded duties as co-CEOs, Oracle
said in its proxy. In November, in a nonbinding vote, investors
rejected the company's pay practices for the fourth straight year.
An Oracle spokeswoman declined to comment.
Media CEOs often rank among the highest paid, and in 2015
accounted for four of the top 10 spots. Median pay for media CEOs
was the highest of any industry group, at $26.2 million last year,
more than double the S&P 500 median.
Auto and auto-parts CEOs had the second-highest median pay, at
$19.3 million, followed by pharmaceutical and biotech chiefs, at
$18 million. Banks -- a group that excludes some of the biggest
diversified financial companies -- ranked last, at $8 million.
The Journal analyzed CEO compensation and performance data for
S&P 500 companies that disclosed pay details between July 1,
2015, and May 31.
Some high-profile chiefs were omitted, along with others at
smaller companies who make significant sums. For example, Google
Inc.'s Sundar Pichai received $100.5 million in 2015, but he runs a
unit of S&P 500 member Alphabet Inc., which paid CEO Larry Page
$1 last year.
Restricted shares made up nearly half of last year's CEO pay,
and equity of any kind made up 63% of pay, compared with an average
of about 57% over the past five years.
"It aligns directly with the shareholders, which is in general a
good thing," said Gregg Passin, head of the North American
executive-pay practice at consulting firm Mercer. Still, "there's
probably an upper limit at some point, somewhere a little bit north
of where we are."
The total pay of some big-name bosses, including General
Electric Co.'s Jeff Immelt and Starbucks Corp.'s Howard Schultz,
declined last year, even though their companies outperformed
industry peers.
Others received big raises even as shareholders suffered. Pitney
Bowes Inc. CEO Marc Lautenbach's compensation rose 55% to $10.8
million. The mailing-services company had a shareholder return of
-12.2%, trailing a median shareholder return of -0.7% for its
industry.
The jump came in part because Mr. Lautenbach received the payout
from a three-year cash incentive program. He was paid less than
targeted for the portion of his 2015 compensation tied to the
year's performance, and most of his pay depends on three-year
measures, said spokesman Bill Hughes. "Our performance over the
last three years was strong."
Continuing a recent pattern, the S&P 500's roughly two dozen
female CEOs made more than their male counterparts, with median pay
of $14.8 million. After Ms. Catz, the highest-paid women were Yahoo
Inc.'s Marissa Mayer, at $36 million, and General Motors Co.'s Mary
Barra, at $29 million. Yahoo's proxy notes that some of Ms. Mayer's
2015 equity awards failed to vest because of the company's poor
performance.
Ms. Barra's pay jumped 77% largely because of a one-time option
grant valued at $11.2 million. A spokesman said Ms. Barra's package
aligns her interests with those of shareholders.
See how the Journal analyzed CEO compensation for this
article.
Write to Theo Francis at theo.francis@wsj.com and Joann S.
Lublin at joann.lublin@wsj.com
(END) Dow Jones Newswires
June 03, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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