April 21, 2011
Did the Great Recession put the brakes on runaway CEO compensation? Even though nearly a quarter of the S&P 1500 companies gave their CEOs a raise in 2009 — during the height of the economic downturn — even as shareholders saw below-average returns, almost 47 percent of CEOs saw their compensation fall between 2008 and 2009, regardless of how shareholders fared. The study, released this week, was conducted by Equilar, an executive compensation data firm.
Ira Kay, co-author of Myths and Realities of Executive Pay, says the report reflects the influence of the financial crisis on corporate boards to “put even more emphasis on pay-for-performance.” Over the three years from 2006-2009, 43 percent of CEOs saw no increase in pay.
Total compensation for S&P 500 CEOs was down 9 percent, to an average $9.25 million in 2009, according to the AFL-CIO — a year in which the federal government placed restrictions on CEO compensation for the first time, on firms that received bailout money.
But not everyone agrees that pay is moving in line with performance. Graef Crystal, a leading executive compensation consultant and author of In Search of Excess: The Overcompensation of American Executives, did his own analysis of the 2009 payouts and found no correlation between CEO compensation and shareholder returns. “Simply put,” he told Bloomberg Businessweek, “companies don’t pay for performance.”
The CEOs that people most love to hate — the bank heads — showed the strongest disconnect with shareholders during that time. Half of them got raises as their shareholders’ returns went down or stayed flat. And the trend seemed to continue last year, according to a New York Times report. Bank of New York Mellon’s Robert P. Kelly, for example, got a 73 percent increase in compensation while his shareholders’ returns rose just 9 percent, and pay to BB&T’s Kelly S. King jumped 114 percent while total shareholder return (change in stock price plus dividends) rose only 6 percent. The New York Times reported that overall, median CEO compensation increased 12 percent in 2010 over the year before, to $9.6 million. Of course, overall the S&P 500 saw similar gains of 13 percent in 2010. (The highest paid CEO in 2010 was Viacom’s Philippe P. Dauman with total compensation of $84.5 million.)
The government has taken measures in recent months to clamp down on excessive CEO compensation in the financial industry: In March, the Federal Reserve proposed a new rule that would require banks to incorporate the risks taken by executives into their compensation packages. Other recent proposals by the FDIC would require large banks to defer 50 percent of bonuses to executives for three years, and allow it to recoup compensation from CEOs of failed banks. It remains to be seen, however, which if any of these proposed rules become law.
Industries in which rising CEO compensation reflected total shareholder return in 2008-2009, whether positive or negative, included the auto industry, the media and retailing.
JPMorgan CEO Concerned about Bank Capital Rules (MSNBC)
Average CEO Salary: $9.6 Million (The Daily Beast)
It’s Good to Be the King: CEO Pay up Big in 2010 (Yahoo Finance)