|Copyright:||Copyright 2011 USA TODAY|
CEOs didn’t have to cry poor for long.
The heads of the nation’s top companies got the biggest raises in recent memory last year after taking a hiatus during the recession.
At a time most employees can barely remember their last substantial raise, median CEO pay jumped 27% in 2010 as the executives’ compensation started working its way back to prerecession levels, a
Two years of scaling back amid tough economic times proved temporary as three-quarters of CEOs got raises in 2010 — and, in many cases, the increases were substantial.
The sizable pay hikes came even though the economy’s recovery remains frail, unemployment is high and corporate profits last year were roughly flat, up 1.5%, from where they were in 2007 when the stock market peaked.
Taking a look at trends show that in 2010, CEO pay:
•Climbed back toward prerecession levels. Median CEO pay in 2010 was
The median amount that CEOs actually took home — which includes salary and cash bonuses, as well as stock and options awarded in previous years that vested or were cashed in — was
•Bounced back in a big way. CEOs’ 2010 median pay jumped 27% from
•Delivered big bonuses. CEOs received a median of
•Set up for an even bigger payday in the future. CEOs saw the estimated future value of stock and options awards take off in 2010, with the median value gaining 32% to
Tough to swallow while jobless struggle
The big increases in executive compensation are difficult for workers to swallow, given that many Americans are struggling just trying to find a job or make ends meet, says
Still, part of the massive increase in CEO pay is a distortion, Johnson says. Because CEO pay fell the past two years, the recovery looks more dramatic. “If you drop a lot, when you come back, it’s a big percentage.”
And even though CEO pay is increasing, it’s still below 2007 levels. “Given the years of pay decreasing, there’s a certain amount of catch-up to get pay back to where it was in 2007,” says
Also, the rising stock market was one of the biggest drivers of CEOs’ hefty windfall in 2010, says William Lazonick, professor at the
Gains come from cost cuts and layoffs
Yet the fact that CEOs’ pay is rising along with stock prices underscores the disconnect between pay and companies’ true underlying performance, Lazonick says. While companies in the
Median pay, of course, just tells you the midpoint where half of CEOs earned more and the other half less. Focusing on that obscures what have been some of the biggest paydays received by CEOs this year:
•The highest paid of the CEOs analyzed by
•Irani, long known for topping CEO pay lists, nearly did it again with his
Most CEOs with the largest pay packages also had strong stock gains. But not all.
And in what could be a hint of a big payday to come, some CEOs are starting to cash in options they received in years when stock values were decimated.
Investors get a ‘say on pay’
There are signs shareholders are prepared to get more vocal about their concern over the direction of CEO pay, largely because they can. This year, because of a new rule, for the first time investors in most publicly traded companies are permitted to have a “say on pay,” which is a non-binding vote on whether they approve of the way companies are paying their top executives. With 200 companies having held meetings where the votes were tallied, shareholders at four companies voted their opposition to the pay strategies, says
The companies where shareholders rejected pay plans include
Others expect shareholder scrutiny over executive pay to ramp up. Most advocates that monitor proxy voting are in favor of companies having to put their CEO pay packages up for a vote every year, says
Greater scrutiny over pay has already resulted in a widespread reduction of corporate perks given to executives. These glitzy benefits, such as discounted financial planning and free tickets to sporting events, have been under fire and are easy for CEOs to give up because they’re so small compared with their salaries.
Meanwhile, the big jump in CEO pay in 2010 will likely give more political power to regulators pushing for all companies to disclose more details on how CEO pay compares with other employees’,
Despite the brewing controversy over CEO pay, some point to recent years as a sign that the system, while imperfect, works. The fact CEO pay fell in 2008 and 2009 as corporate profits sputtered, then recovered when profits and stock prices bounced back, shows boards of directors are adjusting pay based on performance, says
And “while we’re all uncomfortable with the amounts some companies pay,” shareholders want companies to hire the right people who will make the stock prices go up, Johnson says. “It’s a competitive market,” he says. “I know that’s not a popular thing to talk about in a CEO-bashing era.”