Average CEO pay rose faster last year, notching 8.5% gain

 In this Tuesday, Jan. 14, 2014, file photo, Charter Communications CEO Thomas Rutledge is interviewed on the floor of the New York Stock Exchange.
In this Tuesday, Jan. 14, 2014, file photo, Charter Communications CEO Thomas Rutledge is interviewed on the floor of the New York Stock Exchange.

NEW YORK -- The typical chief executive officer at the biggest U.S. companies got an 8.5 percent raise last year, raking in $11.5 million in salary, stock and other compensation, according to a study by executive data firm Equilar for The Associated Press. That's the biggest raise in three years.

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AP file photo

In this Wednesday, May 16, 2012, file photo, President and Chief Executive Officer of CBS Corporation Leslie Moonves attends the CBS network upfront presentation at The Tent at Lincoln Center, in New York.

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Invision/AP/EVAN AGOSTINI

In this Monday, March 13, 2017, file photo, Walt Disney Company CEO Robert Iger attends a special screening of Disney's "Beauty and the Beast" at Alice Tully Hall, in New York.

The bump reflects how well stocks have done under these CEOs' watch. Boards of directors increasingly require that CEOs push their stock price higher to collect their maximum possible payout, and the Standard & Poor's 500 index returned 12 percent last year.

Over the past five years, median CEO pay in the survey has jumped by 19.6 percent, not accounting for inflation. That's nearly double the 10.9 percent rise in the typical weekly paycheck for full-time employees across the country.

But CEO pay did fall for one group of companies last year: those where investors complained the loudest about executive pay. Compensation dropped for nine of the 10 companies scoring the worst on "say on pay" votes, where shareholders give thumbs up or down on top executives' earnings.

Other measures that would highlight the income gap between CEOs and typical workers are on the way, but governance watchdogs worry that Congress will kill or dilute their strength.

"It's all out of whack right now," said Heather Slavkin Corzo, director of union federation AFL-CIO's Office of Investment, which says CEOs for major U.S. companies make 347 times more than the average worker.

The highest-paid executive in the survey was Thomas Rutledge of Charter Communications, which absorbed Time Warner Cable and Bright House Networks last year to become the nation's second-largest cable operator.

His compensation totaled $98 million, about $88 million of that from stock and option awards included as part of a new five-year employment agreement. For Rutledge to collect the full amount, Charter's share price will need to rise 155 percent over six years.

CEOs typically got more than half their total compensation from stock and option grants last year.

The lesson from the rest of the top five is how lucrative the entertainment business can be.

No. 2 on the survey was Leslie Moonves at CBS, who made $68.6 million. That included $63.9 million in bonus and stock awards the company's board said he received for presiding over a 36.6 percent return for CBS shares in 2016 and for keeping CBS the top-rated network in the 2015-16 season, among other performance measures.

No. 3 was Walt Disney's Robert Iger, at $41 million. That was 6 percent less than the year before, as slowing growth resulted in a bonus cut.

Fourth-highest at $37.2 million was David Zaslav of Discovery Communications, whose cable channels include TLC and Animal Planet. Roughly 70 percent of that was from stock and option awards.

No. 5 was Activision Blizzard's Robert Kotick, whose compensation surged 358 percent to $33.1 million. That was almost entirely attributed to $24.9 million in stock awards he received as part of a new five-year employment agreement. To get them, the company's earnings per share must hit a certain level, among other financial targets.

Kotick may not make the top five this year. His 2017 salary was cut by 26 percent to $1.8 million after many shareholders said they were upset about how much Activision Blizzard executives were making. The company also eliminated his guarantee for an annual salary increase.

Kotick's salary cut demonstrates how companies will revamp pay structures in response to complaints from shareholders.

When the shareholders of Exelon met in Philadelphia for their annual meeting last spring, the energy company asked what they thought about how much CEO Christopher Crane and other executives made in the previous year. Exelon shares had lost 22 percent in 2015.

Shareholders made their displeasure known. Of shares voted, 62 percent were against the compensation or abstained. That's the worst say-on-pay percentage for executives in this year's survey.

After the meeting, Exelon made several changes, including capping how much executives can receive in incentive payments if the stock loses money over the year.

Auto supplier BorgWarner had last year's second-worst rate on say on pay, with 60 percent of voting shares saying no or abstaining. The company made changes to its compensation program and cut a 2016 incentive award by $2.4 million to $950,000 for CEO James Verrier. His total compensation dropped 29 percent to $12.3 million last year.

At Chevron, which had the seventh-worst say-on-pay rate, CEO John Watson's compensation fell 2 percent to $18.8 million. After talking with shareholders, the company said it will cap some bonus awards and make other changes for 2017 compensation.

Boards of directors know they have to pay CEOs similar to what their rivals are making, if not more, compensation experts say.

"They're very aware of what their peers are doing," said John Wood, vice chairman of Heidrick & Struggles, a search firm that corporate boards hire to find their next CEO.

When a company gets a poor showing on its say-on-pay vote, though, "companies do take it seriously," said Kelly Malafis, a partner at Compensation Advisory Partners, an executive-compensation consulting firm. "Even if it's not failing, but below 70 or 80 percent, companies see that, and they typically respond in the next year."

That's why governance experts are concerned to see proposed legislation in Washington they say could weaken say on pay. Instead of holding the vote at least once every three years, a proposal says it should happen only when executives' compensation packages have changed "materially" from the previous year. It's part of a push to loosen regulations on businesses to support the economy.

"The say-on-pay vote has been a real game-changer," said Amy Borrus, deputy director of the Council of Institutional Investors, which represents pension funds and other big investors that manage $23 trillion in assets. "We think that's a mistake."

The CEO compensation study includes pay data for 346 executives at S&P 500 companies who have served two full consecutive fiscal years at their respective companies, which filed proxy statements between Jan. 1 and May 1.

To calculate CEO pay, Equilar adds salary, bonus, perks, stock awards, stock option awards, deferred compensation and other pay components that include benefits and perks.

To determine what stock and option awards are worth, Equilar uses the value of an award on the day it's granted, as recorded in the proxy statement. For options, this includes an estimate of what the award could be worth in the future. Their actual value in the future can vary widely from what the company estimates.

Information for this article was contributed by Marcy Gordon and Christopher S. Rugaber of The Associated Press.

Business on 05/24/2017

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