CEO pay rising more slowly, survey finds

‘Gradual process’
Most firms have moved past the era of awarding huge raises to their top executives even as profits and stock price dropped, said Patrick McGurn, executive vice president of ISS. But companies are still in the infancy of efforts to reform pay, and have to yet to assure that CEO paychecks directly — and not just directionally — reflect how they perform compared to the top executives at rival firms, he said.

“Boards, frankly, are just getting up to speed in many instances on what they’ve done in the past and are really just starting to exhibit some control over the pay practices,” McGurn said. “It’s going to be a gradual process.”

However, investor irritation over excessive pay is not dissipating despite the rebound in the stock market and the ebbing of corporate scandals. Nine of 10 institutional investors surveyed recently by consulting firm Watson Wyatt Worldwide said U.S. companies rely on methods that dramatically overpay executives. Nearly as many say those practices have damaged corporate America’s image.

U.S. investors singled out executive compensation as their top concern over the next three years, according to another survey by ISS, to be released this week.

“We’ve had three years of shareholder gains and yet this (CEO pay) is still a headline,” said Tim Ranzetta, president and chief operating officer of Equilar. “Shareholders are still focusing on the issue.”

Given those concerns, investors will continue to find much in this year’s CEO pay packages to raise eyebrows.

The most generous paychecks
Some of the largest paychecks went to the top executives at energy and home building firms, even though their companies’ surging profits arguably had more to do with conditions in the economy and marketplace than with CEO strategizing or leadership, compensation experts say.

“The question is, have you simply allowed your ship to rise along with a rising tide and it’s not the value actually provided,” McGurn said. “Certainly the builders and the energy companies would seem to fit that.”

For example, Occidental Petroleum Corp. awarded Ray R. Irani, its chairman, president and CEO, with restricted stock valued at $30.9 million and long-term incentive payouts valued at $10.6 million. Builder Lennar Corp. awarded President and CEO Stuart A. Miller with a package that included a $21.5 million bonus and restricted stock award of $6.3 million.

CEOs at Wall Street firms also enjoyed among the most generous paydays. One of the largest was the package Lehman Brothers Inc. paid to Richard S. Fuld Jr., its chairman and CEO, valued by the company at $34.5 million.

NBC VIDEO What's behind huge CEO paychecks? April 20: A lot of attention is being paid to the stratospheric sums that some CEOs make. NBC chief financial correspondent Anne Thompson delves into the issue. Nightly News

While companies have been slow to rein in pay, some are being more up front about the way they compensate their CEOs. Such detail will be required beginning next year, when new rules proposed by the Securities & Exchange Commission are to take effect, requiring more disclosure of executive pay packages.

For example, nanomanufacturing technology firm Applied Materials Inc. included a table in its proxy statement with a column showing total compensation paid to its top executives. Last year, the tally shows, the company paid Michael R. Splinter, its president and CEO, a total of $6.4 million, down from the $17.6 million it paid the previous year, reflecting a much smaller bonus and options award.

It might seem obvious for a company to provide such a total. But companies have routinely avoided providing such a figure, leaving it to investors to determine the full value of pay packages split between salary, bonuses, stock awards, options and myriad perks and benefits.

Compensation experts say mandated disclosure could act as a disinfectant in corporate board rooms, forcing directors to more closely examine the way they pay CEOs and eliminating the worst abuses. But the value of the increased information will only be realized if activist investors speak up, they say.

“If we’re going to see better performance in the future,” said McGurn of ISS, “I think it’s always going to be because shareholders took the new information they were provided with and actually did something with it.”

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