| BOSTON, March 17
BOSTON, March 17 Big U.S. companies appear to
have handed out smaller increases in compensation to their chief
executives in 2013 than in 2012, mainly as a result of reduced
grants of stock options, according to an early review of annual
Based on disclosures from 46 companies in the Standard &
Poor's 500 Index that had filed annual compensation reports by
March 11, the median compensation increase for a CEO was 1
percent to $8.64 million.
That was a slower rate of increase than this group of 46
received for 2012 when its median CEO pay rose 15 percent to
$8.53 million. The median compensation for CEOs in S&P 500
companies overall increased about 5.5 percent for 2012.
The review, conducted for Reuters by proxy adviser and
corporate governance consulting firm Institutional Shareholder
Services, provides an early peek at compensation trends but ISS
cautioned that there could be significant changes once all
companies have reported and that the 46 companies may not be
representative of trends for companies in the entire index. Most
companies will file their executive compensation data over the
next few weeks.
Some pay experts have been expecting to see slower growth in
compensation for 2013 - despite the bull market in stocks - as
S&P 500 corporate profits only increased 6.2 percent amid a
stuttering U.S. economic performance, and due to the increasing
use of performance measures to decide on levels of compensation.
In the kinds of incentive plans becoming more popular,
executives do not receive higher compensation just because a
company's share price rises, but rather must perform well on a
series of measures - not just profit, but often including
revenue, margins, cash flow, and in some cases even a company's
safety and environment records.
"They're not going to get monster rewards," said Alan
Johnson, managing director of pay consulting firm Johnson
Associates in New York. "The indications are that companies
continue to do a better job of matching up pay with
However, the figures are unlikely to assuage concerns that
CEOs are reaping bigger increases than those received by many
Americans further down the food chain, exacerbating inequality.
President Barack Obama has been stressing policies intended to
reduce inequality, such as a push for a higher minimum wage.
The study looks at what was granted to CEOs for 2013 and
does not include all the compensation CEOs actually pocketed in
2013 after stock and option awards granted to them in previous
years were exercised or vested. With the S&P 500 surging 32.4
percent last year, including dividends, and almost tripling from
the lows it hit in the financial crisis, some of those awards
from 2009-2012 have proven very lucrative.
A separate review by executive compensation data firm
Equilar of 44 companies in the Fortune 1,000 that filed their
statements in January or February shows that the median value
executives gained from exercising stock options or stock vesting
was $2.1 million in 2013, up 18 percent from 2012.
Investor activists and proxy advisers, including ISS, have
pressed companies for years to align pay with shareholder
interests. In recent weeks, a handful of companies have made
radical changes in the way they reward their CEOs, including
semiconductor maker Intel Corp and mining group
Freeport-McMoRan Copper & Gold Inc.
Among the 46 S&P 500 companies surveyed, the median cash
salary rose $27,584, or 2.6 percent, to $1,079,327. But the
median stock award rose $337,493, or 9.5 percent, to $3,887,008,
and the median cash incentive award rose $63,799, or 3.3
percent, to $1,998,102.
Restraining the overall increase, though, were less generous
stock options awards. Of the 46 companies, only 32 of them
awarded stock options to their CEOs in 2013, down from 35 in
2012. For those 35 companies (including those who did not grant
options in 2013), the average award fell by $548,543, or 23
percent, to $1,880,476 in 2013.
Some companies said they reduced their option awards as they
wanted to reduce the incentive to take certain risks. At
financial services company Comerica Inc, total
compensation for CEO Ralph Babb fell 10 percent to $6.46
million, as the value of his option awards fell to $314,729 from
$1,047,682 in 2012. Comerica said in a filing it cut the
weighting of stock option awards during the year to "discourage
inappropriate risk taking and better align with regulatory
At paint maker Sherwin-Williams, total compensation
for CEO Christopher Connor fell 1.5 percent to $10.8 million, as
the value of stock option awards fell to $3 million from $3.3
million in 2012. The company said in a filing that it has
de-emphasized stock options in favor of stock awards related to
performance to provide more focus on operating performance.
"Most CEOs get it, an increase in stock price is going to be
their greatest opportunity for compensation," said David Dorman,
an investor and board member at a series of companies, including
network technology company Motorola Solutions Inc,
pharmacy group CVS Caremark Corp and KFC and Pizza Hut
owner Yum! Brands Inc.
He said that generally compensation for executives in
corporate America "will be in a pretty tight range."
A few caveats apply to the ISS figures. They do not include
set-asides for executive pensions and other deferred
obligations, which are often established by formula. At some
companies these set-asides fell in 2013 as interest rates rose.
John Roe, ISS's executive director of corporate services,
said companies have embraced new forms of pay. "For the
companies in this sample, it was a year of compensation
adjustments rather than increases," he said.
The ISS review focused mainly on median figures as a way to
exclude results from companies at the top and bottom of the pay
scale that could distort the conclusions.
On an average basis, CEOs among the early S&P 500 filers
received $9.34 million in compensation in 2013 - an increase of
2 percent from the average in 2012.
Since 2011, most U.S. companies have submitted their pay
plans for non-binding shareholder votes amid concerns about
excessive executive compensation.
While investors have largely supported management, the
contests have given some leverage to reformers, particularly as
activist investors press companies to make pay depend on
relative measures like share price versus peers.
The pressure has made a difference at some companies.
For example, Freeport got only 29 percent support from
shareholders for its executive compensation plan last year.
Citing shareholder views, the company on March 3 filed a plan
that would cut in half the salaries of its three top executives
to $1.25 million from $2.5 million.
The company also said it gave them an annual compensation
goal of $7.5 million, with the final figures to be based on the
company's operating cash flow, copper and oil production
volumes, and performance on safety and environmental scores.
Executives could still earn more than that if the company
All of the elements, except for the base salary, are "at
risk" and could be worth nothing in a bad year, Freeport
spokesman Eric Kinneberg said via email. There is "real
potential downside if performance is not good."
Other companies that reworked pay after facing vigorous
opposition to its executive compensation policies from some
shareholders include Intel, which won 68 percent support last
year, and Walt Disney Co with 58 percent. (Intel and
Disney were not among the 46 companies in the study as Intel has
yet to file its proxy statement and Disney has a fiscal year
ending in September)
Disney said in a filing that it reduced the bonus paid to
Chief Executive Robert Iger by almost $3 million to $13.6
million for fiscal 2013 after the company's results did not beat
Intel last month outlined changes for its new CEO Brian
Krzanich such as allowing equity awards to fall in value if
returns for shareholders don't meet targets. Although Krzanich
was promoted to the CEO job last May his compensation was less
in 2013, $9.1 million, than the $15.7 million he got in 2012
when he was chief operating officer. It is also less than half
the $18.3 million his predecessor as CEO - Paul Otellini - got
Brit Wittman, Intel's director of executive compensation,
said the changes were made because shareholders wanted pay to be
more closely tied to performance, especially after the financial
crisis soured many on pay models that once were widely used.
"Pay for failure really seems to alienate investors," he