Theo Francis and
Joann S. Lublin
Updated March 21, 2018 9:43 a.m. ET
The chief executives of America’s biggest companies are on track for another banner year of compensation, fueled by a soaring stock market and an improving economy.
Median pay for the chief executives of 133 of the largest U.S. companies reached an all-time high of $11.6 million in 2017, up from $11.2 million in 2016, a Wall Street Journal analysis of proxy statement data found.
The highest paid so far? Hock Tan, the chief of Broadcom Ltd. , who has been at the center of the hostile bid for Qualcomm Inc. His compensation eclipsed $100 million. Others, like IBM’s Virginia Rometty, took a pay cut.
One extreme: Tesla Inc., whose shareholders on Wednesday approved a multibillion-dollar, 10-year stock-option package for co-founder and CEO Elon Musk.
Total pay—including salary, cash incentives, equity, perquisites and more—rose at least 9.9% for half the executives, the fastest annual growth since 2014, while about a quarter of the executives received raises of 25% or more. Most of the gains came from stock awards, as firms largely held the line on cash compensation and stock options.
Companies in the Journal’s analysis reported strong returns, as well, with half posting total shareholder return above 19.1%, improved from 2016’s median total return of 17.5%. Total return reflects changes in a company’s share price and the effect of dividend payments.
Corporate profits surged in many industries last year, fueled by healthy spending by both businesses and U.S. consumers. And investors have pressured boards to better align CEO compensation packages to shareholder returns. The S&P 500 index returned about 22% last year.
Chiefs at industrial and technology companies are leading the list of high-paid CEOs. Broadcom’s Mr. Tan was paid $103 million in the fiscal year that ended Oct. 29, or quadruple what he made the prior year. About $98.3 million of that came as equity grants, and $4.8 million was cash salary and incentive payments. Broadcom posted a total shareholder return of 52% for the year.
A Broadcom spokesman said Mr. Tan’s pay includes a performance-linked stock grant that vests over four years and that the company doesn’t intend to award him more shares before 2022. A spokesman cited the company’s proxy statement that said the grant, if annualized, is in line with company peers.
“Over the last five years, Broadcom has generated total shareholder return of more than 680%,” the spokesman said. “Mr. Tan’s compensation package is clearly aligned with and designed to drive sustained shareholder value.”
Last week, Broadcom dropped its four-month bid to acquire rival Qualcomm after the U.S. government blocked the $117 billion hostile deal on national-security grounds.
Other top earners include Alex Molinaroli of Johnson Controls International PLC, who made $78 million during the company’s last fiscal year, which ended Sept. 30, and Dow Chemical Co. CEO Andrew Liveris, who made nearly $66 million. Johnson Controls posted a total shareholder return of -1%, while DowDuPont Inc.’s return was 28%.
DowDuPont said $43 million of Mr. Liveris’s pay came from cashing out pension benefits following the Aug. 31 merger of Dow and DuPont. Mr. Liveris now serves as executive chairman of the combined company and CEO of its Dow Chemical subsidiary. Absent those payouts, a spokeswoman said, Mr. Liveris’s pay was essentially unchanged.
A Johnson Controls spokesman declined to comment. About $64 million of Mr. Molinari’s pay last year consisted of cash-severance payments after the company named his successor as CEO about six months earlier than originally planned, according to the company’s proxy.
Pay slipped for about a quarter of CEOs in the Journal’s latest analysis, in some cases significantly. It fell by 43% for Ms. Rometty of International Business Machines Corp. , to $18.6 million. AT&T Inc. chief Randall Stephenson’s pay rose just 1% to $28.7 million.
An IBM spokesman said Ms. Rometty’s pay in 2016 included a one-time option grant, then valued at $12.1 million. Excluding that grant, her 2017 pay is down about 10%. IBM’s total return last year was -4%.
AT&T declined to comment.
Much of 2017’s gains were driven by grants of company stock. The combined value of such grants rose by 10% over the previous year, according to a separate analysis of about 100 large public companies by Institutional Shareholder Services, which advises investors on proxy votes.
By contrast, aggregate cash compensation rose much more modestly, ISS found, and companies once again pared back on stock-option grants, which only have value if the shares exceed a preset price. The impact of pension gains, which are included in total pay figures, also eased compared with 2016.
A larger sample of proxies likely will reveal “more conservatism around CEO pay last year,’’ said Irving S. Becker, vice chairman for executive pay and governance at Hay, a unit of recruiters Korn/Ferry International . He cited boards’ sensitivity about “the windfalls from the tax changes and the new CEO pay ratio disclosure” rules. For the first time, U.S. firms are required this year to disclose how much they pay their median workers and how that compares with the CEO’s pay.
The Journal analyzed compensation and performance data for 133 companies in the S&P 500 index through March 16 with fiscal years ending since July 1, 2017, using data provided by MyLogIQ LLC. More than 30 additional top bosses were omitted from aggregate calculations because they started or left the job during their employer’s most recent fiscal year.
Some large pay packages fall outside the Journal’s analysis, including that of Tesla, since the electric-car maker isn’t in the S&P 500.
Mr. Musk’s pay package, which has been valued at more than $50 billion, is notable not only for its size, but also for its 10-year horizon. Tesla said Mr. Musk’s pay would be entirely tied to the company’s performance.
“This is creating a whole conversation around, do we need some big long-term program for our CEOs or top execs?” said Robin Ferracone, chief executive of pay consultancy Farient Advisors LLC. “Are there going to be others following suit on this?”
Appeared in the March 22, 2018, print edition as 'CEO Pay Reached New High in 2017.'
Author: Theo Francis and Joann S. Lublin
Source: Wall Street Journal