CEO Pay Is Shooting Skyward

by Jonathan Berr | December 16, 2011 10:37 am

Dow Leaderboard[1]CEO pay, which took a hit in 2008 and 2009 as the Great Recession ravaged the economy, surged in 2010 as corporate profits rebounded, according to a study released today by corporate governance adviser GMI, the leading authority on executive compensation.

The research outfit’s CEO Pay Survey analyzed total realized compensation and annual pay data from S&P 500 and Russell 3000 companies for fiscal 2010. GMI, formerly the Corporate Library, found that total realized compensation for CEOs in the S&P 500 — which includes total compensation, pension increases and money received from exercising options — rose 36.5% in 2010. Russell 1000 corporate leaders saw a gain of more than 38% while CEOs in the Russell 3000 realized an increase of 27%. Perks for corporate leaders in the S&P 500 rose 11% from 2009 to 2010.

“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,” Paul Hodgson, Chief Communications Officer and Senior Research Associate at GMI, said in a press release.

Hodgson expects the pay increases to continue in 2011, though not at as robust a rate. Rising corporate profits will boost cash bonuses that they are based on.

Four of the 10 highest-paid CEOs of 2010 (which can be found on the chart below) were retired or terminated executives. Three CEOs who made the list were from the health care industry, with McKesson (NYSE:MCK[2]) CEO John Hammergren leading the pack. This represents a huge shift from previous years.

“In the old days, investment banks would be there,” Hodgson said in an interview, adding that he was surprised to find so many health care companies on the list. “I hope it’s not caused by the Obama Health Care plan.”

According to GMI, Hammergren, who has been CEO of the health care services and information technology company since 2001, earned more than $145 million in total unrealized compensation in 2010. Some of the pay clearly is deserved because under his leadership, shares of McKesson have more than doubled. Nonetheless, Hodgson argues that McKesson’s board has been too generous to Hammergren.

As Hodgson notes, Hammergren has received between $10 million and $19 million annually for the past several years, mostly in market-priced stock options and time-vesting restricted stock. His $1.7 million base salary is in the top 10% of the S&P 500 and the top 5% of the Russell 3000. He also was paid almost $1 million in perquisites such as home security costs and the use of corporate aircraft.

“(McKesson is) an extremely generous compensator of executives,” Hodgson said.

Aetna (NYSE:AET[3]), the health insurance giant, made the list as well. Former CEO Ronald Williams earned a profit of more than $50 million in 2010 in the final year of his leadership. Under his five-year reign, shares of the company plunged 39%, according to GMI.

GMI’s list had other surprises, including General Growth Properties (NYSE:GGP[4]) CEO Adam Metz, who earned $66.7 million even though the real estate investment trust recently emerged from bankruptcy. Metz, who has been CEO since 2008, received cash bonus payments totaling more than $46 million in 2010.

“Named executives at GGP received nearly $115 million in bonuses based on a 2009 plan designed ‘to replace historic equity grants that would not customarily be made during the pendency of the Chapter 11 Cases’” the GMI report said. “In total, 48 employees received bonuses to cover what may have otherwise been awarded if the company was not in bankruptcy.”

Officials from McKesson, Aetna and General Growth didn’t respond to requests for comment.

The Top 10 Highest Paid CEOs of 2010
realized comp.
McKesson Corp. John H. Hammergren Health Care Providers
& Services
Omnicare Joel F. Gemunder Health Care Providers
& Services
TRW Automotive
Holdings Corp.
John C. Plant Auto Components $76,841,646
Verisk Analytics Frank Coyne Professional Services $68,416,726
CVS Caremark Thomas M. Ryan Food & Staples $68,079,823
General Growth
Properties, Inc.
Adam Metz Real Estate Investment
Trust (REIT)
Polo Ralph Lauren Ralph Lauren Textiles, Apparel &
Luxury Goods
Vornado Realty Trust Michael D. Fascitelli Real Estate Investment
Trust (REIT)
Aetna Inc. Ronald A. Williams Health Care Providers
& Services
GAMCO Investors Mario J. Gabelli Capital Markets $56,608,736
Source: GMI

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned stocks.

  1. [Image]:
  2. MCK:
  3. AET:
  4. GGP:

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