Some of these 'overpaid' CEOs are taking pay cuts. Will it matter?
By Levi Sumagaysay
As You Sow's annual list of overpaid CEOs arrives as companies cut compensation for big names like Tim Cook, but other institutional investors aren't pushing for the cuts as CEO compensation continues to grow faster than workers'
Apple Inc. Chief Executive Tim Cook is No. 10 on a new list of the most "overpaid" chief executives after making nearly $100 million last year, but after pressure from major shareholders, he asked for and received a 50% compensation cut this year.
The Apple (AAPL) CEO is not alone. At least three of the top 10 and six of the top 100 chief executives called out for their pay by shareholder advocacy group As You Sow in a new report Thursday have agreed to lower compensation in the past year, as a pandemic-era boom in stock prices fizzled out. Shareholder groups like As You Sow have been agitating for pay reductions for top executives both publicly and behind closed doors in meetings with the companies, and one of the authors of the report believes we might be seeing a turning point.
"I think we'll see pay packages that are lower overall this year," Rosanna Landis Weaver, director of Wage Justice and Executive Compensation at As You Sow, told MarketWatch ahead of the report's official release. "If there is a sustained downturn, I don't think shareholders will tolerate a decoupling of pay from performance."
The newest numbers showed no change in the direction so far, though. The ninth annual report found that executive pay packages grew larger once again, along with the gap between CEO and median worker pay. This has happened even as shareholder opposition to CEO grows, but as true progress is held back by big institutional investors that continue to vote for outsize pay packages anyway, according to the report.
"More financial managers are voting against more pay packages," the report's authors wrote. "If it weren't for the continued weak response from a handful of the big players, the message that shareholders are fed up would be clearer."
The median pay for the 100 most overpaid CEOs was about $23.5 million, up 8 percent over the year before. The pay for the No. 1 CEO on the list, David Zaslav of Warner Bros. Discovery Inc. (WBD), was $256.6 million -- 2,972 times more than the median worker pay of $82,964, according to the report.
A Warner Bros. Discovery spokesperson said Zaslav may not see much of that whopping figure, which is based on options granted to him under a contract extension in 2021.
"The vast majority of the headline number is theoretical because it is based on a one-time options grant that only starts to provide financial benefit to Mr. Zaslav if WBD's stock price more than doubles, representing in excess of $50 billion of additional value for shareholders," the spokesperson said.
In between Zaslav and Cook, the rest of the top 10 of "The 100 Most Overpaid CEOs" report, in order: Fabrizio Freda of Estee Lauder Cos. (EL); Jay Snowden of Penn National Gaming Inc. (PENN); Patrick Gelsinger of Intel Corp. (INTC); Glenn Fogel of Booking Holdings Inc. (BKNG); William McDermott of ServiceNow Inc. (NOW); Robert Goldstein of Las Vegas Sands Corp. (LVS); Jamie Dimon of JPMorgan Chase & Co. (JPM); and Andy Jassy of Amazon.com Inc. (AMZN)
Besides Cook, two others in the top 10 have faced changes to compensation this year. After shareholders voted against Dimon's large stock bonus last year, JPMorgan said it would not give him any more "special awards," and Gelsinger took a 25% reduction in his base salary and changes to equity awards that increase the stock-price hurdles to cash them. Other CEOs on the list who have been targeted for compensation cuts in the past year include Larry Culp of General Electric Co(GE), David Solomon of Goldman Sachs Group Inc(GS)and Sanjay Mehrotra of Micron Technology Inc(MU)
An Intel spokesperson said "73% of [Gelsinger's] equity awards are performance-based, meaning Pat will not realize a significant portion of his compensation unless there is substantial, long-term value creation for the company."
While reduced pay packages may mean some of the CEOs will be left off the list next year, it may not make much of a difference to the overall totals. The As You Sow report cites eight examples of how shareholder votes previously made a difference in the pay of CEOs at some well-known companies, including at Chipotle Mexican Grill Inc. (CMG) and Hilton Worldwide Holdings Inc. (HLT) Both companies reduced the pay of their CEOs more than 50% in 2021 compared with 2020 after facing shareholder pressure, yet CEO pay has continued to increase.
And so has the ratio of CEOs to average workers. At Amazon, the pay ratio reached 6,474 to 1, with CEO Jassy's pay package totaling $212.7 million while the median worker pay was $32,855. An Amazon spokesperson said Securities and Exchange Commission rules required the company to report in its proxy the stock grant Jassy received when he became CEO of Amazon in 2021, even though it vests over 10 years.
"What this equates to from an annual compensation perspective is competitive with that of CEOs at other large companies and was approved by the Amazon Board of Directors," the spokesperson said.
Long-term vesting schedules of gigantic stock compensation do lead to some years looking bigger than others, which As You Sow acknowledges. Though Tesla Inc. (TSLA) CEO Elon Musk did not appear on the list, the report mentioned him and his billions of dollars worth of equity awards at Tesla as a case study.
"Equity is granted under the theory that it aligns the executive's interests with that of shareholders to focus on shared future prosperity. There is no better proof of the hollowness of this argument than Elon Musk, whose record-breaking awards at Tesla appear to have done the opposite," the report said, pointing out that Tesla stock lost about 65% of its value last year as Musk sold shares to fund his acquisition of Twitter Inc. A shareholder lawsuit against the Tesla board over Musk's compensation was heard in November and is awaiting a ruling.
The efforts of As You Sow and other shareholder groups speaking out against CEO pay have seemingly had an effect. The average vote against CEO pay packages at S&P 500 companies since 2017 has risen from 8.6 percent against in 2017 to 12.8 percent against in 2022, according to the report.
The authors point out that some large voting blocs have stood in their way, though. The big players the report's authors identified were BlackRock Inc. (BLK), Vanguard and State Street Global Advisors. (STT)
According to the report:
"Our proxy voting approach on executive compensation packages is based on our assessment of how well pay promotes long-term value for the company and our clients as its shareholders," a BlackRock spokesperson said, and mentioned that BlackRock provides clients a chance to participate in proxy voting "where we are able."
A spokesperson for State Street said the company would have no comment. Vanguard did not respond to a request for comment.
Shivaram Rajgopal, a professor of accounting and auditing at Columbia Business School, acknowledged that say-on-pay voting has increased, but said he doubts executive pay will come down significantly anytime soon, largely because of those who aren't agitating like As You Sow.
"The opposition in general tends to be pretty small... In general, institutions vote with management," Ragjopal told MarketWatch.
As You Sow determined the rankings by relying on analysis of CEO pay vs. shareholder return, then calculating a figure for "excess pay"; identifying the companies where the most shares voted against the CEO pay package; and comparing CEO to median worker pay.
Representatives from Apple, Booking, Estee Lauder, Penn and Las Vegas Sands did not return requests for comment. A JPMorgan spokesperson said the company would have no comment. An email to Tesla bounced back because the company's PR mailbox is full.
-Levi Sumagaysay
(END) Dow Jones Newswires
February 17, 2023 08:29 ET (13:29 GMT)
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