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December 19, 2011
CEO Pay at S&P 500 Companies Up 37% in 2010
    by Robert Kropp

Increases in CEO pay are far greater than those of share prices, GovernanceMetrics International finds, and three of the highest paid executives are with companies whose shareowners have expressed dissatisfaction over pay packages.

Since the 2011 proxy season ended, GovernanceMetrics International (GMI) has issued two reports analyzing the outcomes of shareowner votes on executive compensation.

The first identified 42 S&P500 companies at risk for failed say-on-pay votes in 2012. That report was followed by another, which found that the overwhelming majority of shareowners favored annual votes on executive compensation packages.

The recent proxy season was the first in which public companies were required by the Securities and Exchange Commission (SEC) to provide shareowners with an advisory vote on executive pay. Many shareowner activists and corporate governance advocates expressed disappointment at this year's results; according to Institutional Shareholder Services (ISS), 91.2% of shareowners supported management proposals.

Disappointment over those vote totals is likely to increase with the publication of yet another report from GMI, published last week, that surveys CEO pay packages at the nation's largest companies in 2010.

According to the report, total realized compensation for the CEOs of S&P 500 companies increased by almost 37% last year. Total realized compensation for the CEOs of Russell 3000 companies rose by more that 27%, after two years in which the amount declined.

However, "The decline in the economy in 2008 and 2009 outstripped the decline in CEO pay," the report points out. Furthermore, "In 2010, when stock prices had begun to recover, the increase in CEO pay has outstripped the rise in share value." For instance, the Russell 3000 was up by 16.93% in 2010, more than ten percentage points less than the median increase in CEO pay.

"The 36.5 percent increase in realized compensation is particularly notable when it's put in context of the modest growth of the economy in 2010 and general public company performance last year," said Paul Hodgson, Chief Communications Officer and Senior Research Associate at GMI.

Three of the ten highest paid CEOs in 2010 are from the Health Care Providers & Services industry, including the top two. John Hammergren of McKesson earned nearly 80% of his total realized compensation of more than $145 million by exercising stock options for a profit of more than $112 million.

"The options vested solely with the passage of time and absent any performance criteria," the report noted. Hammergren also realized a pension increase of nearly $13.5 million in 2010, and now holds more than $106 million in pension and non-qualified deferred compensation.

Four of the 10 highest paid CEOs were retired or terminated executives receiving exit packages.

Three of the ten highest paid executives were from companies whose shareowners expressed considerable dissatisfaction with management pay proposals, either by voting against the proposal or by withholding votes in favor of board members who sit on the compensation committee.

"Shareholders understand and expect that extraordinary compensation must be linked sufficiently to extraordinary performance," Hodgson said. "For that reason, they are increasingly frustrated about these clear failures of compensation governance."

"Every area of pay has risen," GMI concluded. "It remains to be seen whether 2011—a year of much more mixed fortunes, with the Russell 3000 down almost ten percent so far—will bring a proxy season of greater unrest and/or a reversal of this pay recovery."


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