guardian.co.uk,
Dominic Rushe in New York, Wednesday 14
December 2011
John Hammergren, CEO of healthcare provider McKesson, earned $145m last year. Photograph: George Nikitin/AP |
Chief
executive pay has roared back after two years of stagnation and decline.
America's top bosses enjoyed pay hikes of between 27 and 40% last year,
according to the largest survey of US CEO pay. The dramatic bounceback comes as
the latest government figures show wages for the majority of Americans are
failing to keep up with inflation.
America's
highest paid executive took home more than $145.2m, and as stock prices
recovered across the board, the median value of bosses' profits on stock
options rose 70% in 2010, from $950,400 to $1.3m. The news comes against the
backdrop of an Occupy Wall Street movement that has focused Washington's
attention on the pay packages of America's highest paid.
The
Guardian's exclusive first look at the CEO pay survey from corporate governance
group GMI Ratings will further fuel debate about America's widening income gap.
The survey, the most extensive in the US, covered 2,647 companies, and offers a
comprehensive assessment of all the data now available relating to 2010 pay.
Last year's
survey, covering 2009, found pay rates were broadly flat following a decline in
wages the year before. Base salaries in 2009 showed a median increase of around
2%, and annual cash compensation increased just over 1.5%. The troubled stock
markets took their toll, and added together CEO pay declined for the third year,
though the decrease was marginal, less than three-tenths of a percent. The
decline in the wider economy in 2007, 2008 and 2009 far outstripped the decline
in CEO pay.
This year's
survey shows CEO pay packages have boomed: the top 10 earners took home more
than $770m between them in 2010. As stock prices began to recover last year,
the increase in CEO pay outstripped the rise in share value. The Russell 3000
measure of US stock prices was up by 16.93% in 2010, but CEO pay went up by
27.19% overall. For S&P 500 CEOs, the largest companies in the sample,
total realised compensation – including perks and pensions and stock awards –
increased by a median of 36.47%. Total pay at midcap companies, which are
slightly smaller than the top firms, rose 40.2%.
GMI released
a preliminary report on 2010 CEO pay earlier this year, before all the data was
available. Paul Hodgson, a senior research associate at GMI, said that report
had shown a significant bounce but he had expected a wider sample to dampen the
effect.
"Wages
for everybody else have either been in decline or stagnated in this period, and
that's for those who are in work," said Hodgson. "I had a feeling
that we would see some significant increases this year. But 30-40% was
something of a surprise." Bosses won in every area, with dramatic
increases in pensions, payoffs and perks – as well as salary.
Still,
there are no bankers among this year's big winners. Three of this year's top 10
earners come from the healthcare industry. Top earner John Hammergren at McKesson,
the world's largest healthcare firm, made $145,266,91 last year – most of it
from stock options.
The rising
stock markets were especially good to CEOs, said Hodgson. Stock options were
the main area that drove these outsized awards. "They got the options, the
market collapsed, then it came back – and all of a sudden they were in the
money again," he said.
And there
will be more to come. GMI, formerly known as the Corporate Library, is
expecting a rash of massive stock option bonuses as many firms awarded their
top executives big option deals when the stock markets hit their lows in
2007-2008.
"There's
still a lot of money just waiting in the market," said Hodgson. He
described the upcoming awards as a "bombshell" likely to dwarf this
year's figures.
2010 was a
great year to lose your job as a CEO. Four of the 10 highest paid CEOs were
retired or departing executives. Ronald Williams, former head of Aetna, a
health insurer, exercised 2.4m options for a profit of $50.4m. Aetna's stock
price declined by 70% from when Williams assumed the role of CEO in February
2006 until his retirement. At pharmacy chain CVS, Thomas Ryan made a $28m
profit on his options. During Ryan's 13-year tenure as CEO, CVS Caremark's
stock price decreased almost 54%.
Omnicare's
Joel Gemunder retired last August and received cash severance of $16m, part of
a final-year pay package worth $98.28m. Adam Metz, the former boss of General
Growth Properties, a real estate company that specialises in shopping malls,
walked away with a $46m cash bonus in 2010. GGP executives received nearly
$115m in bonuses from the firm as it emerged from bankruptcy.
But this
year's top earner may have his biggest payday still to come. Hammergren is due
a $469m payoff if McKesson changes ownership. "Boards make these
decisions, but they don't work out what happens if they stay in the job,"
said Hodgson.
"If
they had have done, one hopes, they would have looked at each other and said:
'This is ridiculous.'"
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