On CEO Pay

by F.

There’s a saying that, if there’s money on the table, you take it. Apparently, this is what execs are doing. I can’t blame them, of course: they are doing exactly what one would expect them to do.

The FT did a survey which showed that the “median pay package of US chief executives, which consists of salary, bonus, options exercised during the period and other long-term compensation” rose significantly last fiscal year. How much? “20 per cent to about $5m.”

Oh, but that 20 per cent increase probably bought something, right? Uh… sort of: “net profits at their companies increased by an average of 15 per cent.”

Oh, but the stock must have increased commensurate with exec pay, right? Uh… no: “total shareholder returns, calculated by combining share price movements and dividends, rose by only 9 per cent.”

So let’s see:

  1. Pay Increase: 20%
  2. Net Profit Increase: 15%
  3. Shareholder Returns (price + dividend): 9%

It’s out of line, but without knowing the historical numbers, it’s hard to say whether things are getting worse or better. In any event, shareholder groups may agitate for lower CEO salaries:

After decades during which the wages of average Americans have failed to keep pace with the sharp rises in chief executives’ pay, shareholders in US companies have become more vocal about executive compensation.

The rest of the story is here. Of course, to pressure the CEO, you have to have a means to do so. Do shareholders have such rights? Doesn’t look like it, though this may change:

Some of the world’s largest investment managers have called on US regulators to give shareholders power to change thecomposition of US boards, claiming shareholders in US companies “lack basic rights which they take for granted in other developed countries”.

The call is a sign that one of the key tenets of US corporate governance – limited shareholder access to company proxies for board elections – is coming under attack from non-US investorsas foreign ownership of US companies grows.

More on the latter story here.