• About two in three CEOs got raises. For 16 CEOs in the sample, pay more than doubled from a year earlier, including Bank of America’s Brian Moynihan (from $1.3 million to $7.5 million), Marathon Oil’s Clarence Cazalot Jr. (from $8.8 million to $29.9 million) and Motorola Mobility’s Sanjay Jha (from $13 million to $47.2 million).
• CEOs running healthcare companies made the most ($10.8 million). Those running utilities made the least ($7 million).
• Perks and other personal benefits, such as hired drivers or personal use of company airplanes, rose only slightly, and some companies cut back, saying they wanted to align their pay structure with “best practices.”
Military contractor General Dynamics stopped paying for country club memberships for top executives, though it gave them payments equivalent to three years of club fees to ease “transition issues” caused by the change.
The typical pay of $9.6 million that Equilar calculated is the median value, or the midpoint, of the companies used in the Associated Press analysis. In other words, half the CEOs made more and half less.
To value stock awards and stock options, The Associated Press used numbers supplied by the companies. Those figures are based on formulas the companies use to estimate what the stock and options will eventually be worth when a CEO receives the stock or cashes in the options.
Stock awards are generally valued based on the stock’s current price. Stock options are valued using company estimates that take into account the stock’s current price, how long until the CEO can cash the options in, how the stock price is expected to move before then, and expected dividends. Estimates don’t generally take inflation into account.
The shift to stock awards is at least partly rooted in what is known as the Dodd-Frank law, passed in the wake of the financial crisis, which overhauled how banks and other public companies are regulated.
Beginning last year, Dodd-Frank required public companies to let shareholders vote on whether they approve of the top executives’ pay packages. The votes are advisory, so companies don’t have to take back even a penny if shareholders give them the thumbs down. But shame has proved a powerful motivator.
Embarrassing ‘no’
It got Hewlett-Packard to change its ways. After an embarrassing “no” vote last year on the 2010 pay packages, including nearly $24 million for ousted CEO Mark Hurd, the company huddled with more than 200 investment firms and major shareholders, then threw out its old pay formula. New CEO Meg Whitman is getting $1 a year in salary and no guaranteed bonus for 2011. Nearly all her pay is in stock options that could be worth $16 million, but only if the share price goes up.
Other companies took notice, too. Last year, shareholders rejected the CEO pay packages at Janus Capital, homebuilder Beazer Homes and construction company Jacobs Engineering Group. All won approval this year after the companies made the packages more palatable to shareholders.
To be sure, shareholders aren’t voting en masse against executive pay. Instead, they seem to be saving “no” votes for the executives they deem most egregious. Of more than 3,000 U.S. companies that held votes in 2011, only 43 got rejections, according to ISS. But the mere presence of the “say on pay” vote is triggering change, shareholder activists say.
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