What’s a CEO worth? Millions ... and then some

No matter which formula you use, Yahoo CEO Semel’s total illustrates one of the most pronounced recent trends in executive pay: Salary and cash bonuses account for only a small portion of total compensation. Almost all of his pay — $71.4 million — came as stock grants and stock options, according to AP calculations. His salary totaled only $250,001.

Plus, the eventual payouts from stock options handed to CEOs could be substantially higher in future years if the overall market keeps floating most stock boats higher.

Consider the case of Occidental Petroleum’s Irani, who topped a separate Top 10 list of executives who exercised previously awarded stock options, compiled for the AP by Capital IQ, a division of Standard & Poor’s. His net gain, before taxes, on shares he exercised in 2006 was $270.2 million — an amount not included in AP’s pay total.

But it’s worth noting that three hedge fund managers — James Simons of Renaissance Technologies Corp., Kenneth Griffin of Citadel Investment Group and Sears Holding Corp. Chairman Edward Lampert, who also runs ESL Investments — together earned more than the 386 CEOs the AP studied combined. They collectively earned $4.4 billion last year, according to Alpha magazine, published by Institutional Investor.

Fact file: CEO pay How the AP calculated pay The Associated Press' calculation of total executive pay includes salary, bonuses, incentives, perks, above-market returns on deferred compensation and the estimated value of stock options and awards granted during the year. The figures are taken from the "summary compensation table" and the "grants of plan-based awards" table in each company's proxy statement.

Hedge fund managers say there is nothing wrong with such outsized returns because their pay is strictly related to performance and could fall to zero in any year when they stumble.

The likelihood of a similar flatlining of pay totals for CEOs of public companies is almost nil, however, even for companies with huge losses and dire prospects. And consultants expect CEOs to cite the fat paychecks of hedge fund managers and the kings of Wall Street to argue for even more lucrative packages.

It wasn’t supposed to turn out this way.

This was expected to be the year that investor anger over pay boiled over. After Home Depot Inc.’s Robert Nardelli and Pfizer Inc.’s Henry A. McKinnell left their battered companies with golden parachutes worth $210 million and nearly $200 million, respectively, shareholder activists entered proxy season this spring primed for a showdown on pay and outsized retirement packages. It didn’t happen.

Most annual meetings were quiet affairs. Shareholders did win votes giving them a say in executive compensation at Verizon Communications Inc., Blockbuster Inc. and Motorola Inc.

But mutual funds largely backed companies in voting against the initiatives, a poor portent for their future success at slowing the growth of executive compensation.

A recent report by the Congressional Research Service helps to put the executive pay issue into a real-world context. CEOs make, on average, 179 times as much as rank and file workers, double the 90-to-1 ratio in 1994, according to the agency’s calculations.

Options grants and stock awards helped boost CEO pay as much as six-fold during the 1990s economic expansion, according to compensation consultant Donald Delves. Then the stock market bubble burst in 2000 — but CEO pay hasn’t come down since.

By contrast, median household income edged up only 8.6 percent from 1990 to 2005, according to U.S. Census data.

If the minimum wage had risen at the same pace as CEO pay since 1990, it would be worth $22.61 today, according to the Institute for Policy Studies. Instead, the federal minimum wage will increase to $5.85 an hour on July 24, the first increase in a decade.

CEOs are also much richer than lower-level executives at their own companies. The Hay Group, a compensation consulting company, estimates that the average CEO makes 2.5 times more than the average executive in base pay.

That doesn’t bother S. Randy Lampert, a managing director for investment banking at Morgan Joseph & Co., who advises corporations through the bank’s Activist Defense Group. “Compensation is only excessive when it exceeds industry norms and the stock performance has been underwhelming,” he said.

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