LITTLE ROCK — Profits at big U.S. companies broke records last year, and so did pay for chief executive officers.
The Associated Press looked at the 322 companies in the Standard & Poor’s 500 that had filed statements with federal regulators through April 30. The sample includes only CEOs in place for at least two years.
Profit at companies in the Standard & Poor’s 500 stock index rose 16 percent last year, in an economy that grew more slowly than expected.
The median compensation for top executives was $9.6 million in 2011, according to the analysis, which used data from Equilar, an executive pay research firm. Median means half of the executives made less and half made more.
That was up more than 6 percent from the previous year, and is the second year in a row of increases. The figure is also the highest since the AP began tracking executive compensation in 2006.
Two Arkansas companies are on the list, Wal-Mart and Murphy Oil. Wal-Mart’s Michael Duke earned $18.1 million last year, down 3.1 percent from 2010, and Murphy’s David Wood earned $10.6 million, up 3.6 percent.
The 322 companies trimmed cash bonuses but handed out more in stock awards. For shareholder activists who have long decried chief executive pay as exorbitant, that was a victory of sorts.
That’s because the stock awards are being tied more often to company performance. In those instances, top executives can’t cash in the shares right away: They have to meet goals first, like boosting profit to a certain level.
The corporate world is under more scrutiny since the financial crisis struck in fall 2008.
Last year, a law gave shareholders the right to vote on whether they approve of the CEO’s pay. The vote is nonbinding, but companies are keen to avoid a “no.”
“I think the boards were more easily shamed than we thought they were,” said Stephen Davis, a shareholder expert at Yale University, referring to boards of directors, which set executive pay.
In the past year, he says, “Shareholders found their voice.”
The median stock awards was worth $3.6 million in 2011, up 11 percent from the year before. Cash bonuses fell about 7 percent, to $2 million.
The value of stock options, as determined by the company, climbed 6 percent to a median $1.7 million. Options usually give the CEO the right to buy shares in the future at the price they’re trading at when the options are granted, so they’re worth something only if the shares go up.
CEOs managed to sell more, and squeeze more profit from each sale, despite problems ranging from a downgrade of the U.S. credit rating to an economic slowdown in China and Europe’s never-ending debt crisis.
Still, there wasn’t much immediate benefit for the shareholders. The S&P 500 ended the year unchanged from where it started. Including dividends, the index returned a slender 2 percent.
Shareholder activists, while glad that companies are moving a bigger portion of CEO pay into stock awards, caution that the rearranging isn’t a cure-all.
For one thing, companies don’t have to tie stock awards to performance. Instead, they can make the awards automatically payable on a certain date — meaning all the CEO has to do is stick around.
Other companies do tie stock awards to performance but set easy goals. Sometimes, “they set the bar so low, it would be difficult for an executive not to trip over it,” said Patrick McGurn, special counsel at Institutional Shareholder Services, which advises pension funds and other big investors on how to vote.
But companies also have to pay executives well to attract and retain talented CEOs and other top management, said Joshua Henke, managing director for Longnecker & Associates, an executive-compensation consulting firm in Houston.
“The environment right now is really about 50-50 — those trying to scrutinize their plans and make sure they are abiding by ISS and the remaining trying to do what’s best not only by their shareholders most importantly but also their talent, their executive team that is in place,” Henke said.
For many shareholders, their main concern — that pay is just too much, no matter what the form — has yet to be addressed.
“It’s just that total [compensation] is going up, and that’s where the problem lies,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.
The typical American worker would have to labor for 244 years to make what the typical boss of a big public company makes in one. The median pay for U.S. workers was about $39,300 last year. That was up 1 percent from the year before, not enough to keep pace with inflation.
Since the AP began tracking CEO pay five years ago, the numbers have seesawed. Pay climbed in 2007, fell during the recession in 2008 and 2009 and then jumped again in 2010.
The shift to stock awards is at least partly rooted in what is known as the Dodd-Frank law, passed in the wake of the financial crisis, which overhauled how banks and other public companies are regulated.
Beginning last year, Dodd-Frank required public companies to let shareholders vote on whether they approve of the top executives’ pay packages. The votes are advisory, so companies don’t have to take back even a penny if shareholders give them the thumbs-down. But shame has proved a powerful motivator.
After a “no” vote last year on Hewlett-Packard’s 2010 pay packages, including nearly $24 million for ousted CEO Mark Hurd, the company huddled with more than 200 investment firms and major shareholders, then threw out its old pay formula.
New CEO Meg Whitman is getting $1 a year in salary and no guaranteed bonus for 2011. Nearly all her pay is in stock options that could be worth $16 million, but only if the share price goes up.
Hewlett-Packard announced Wednesday that it will cut 27,000 jobs in its global work force by October 2014 because of poor sales and a drop in profits. It employs about 1,400 in Conway.
Still, the shareholder revolt is not widespread.
Of more than 3,000 U.S. companies that held votes in 2011, only 43 got rejections, according to Institutional Shareholder Services.
Information for this article was provided by David Smith of the Arkansas Democrat-Gazette.
Business, Pages 27 on 05/26/2012