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2012 CEO pay report

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Articles - October 2012
Monday, September 24, 2012

Median pay for all 20 Oregon CEOs has remained less than a third of the S&P 500 CEO pay. 

That median pay rose from $2.1 million in 2007 to $3.0 million in 2011. Equilar produces an annual S&P 500 CEO Pay Study, which shows that prior to the recession in 2007, median S&P 500 CEO pay was approximately $8.7 million. It fell the next two years; then, as stock markets recovered, it roared back to $9.6 million in 2011. Nike, Precision Castparts and FLIR are currently the only Oregon companies included in the S&P 500 index.

Nike CEO Mark Parker’s total pay was more than a third of the $103 million paid to our CEO group.

Parker earned more than $35 million for the year ended in May 2012. Two-thirds of Parker’s pay was stock awards, which could rise or fall in value by the time he can exercise them. He received no bonus and his salary was only $1.6 million.

Looking at Nike’s performance, net income only declined once, in 2009, and was at an all-time high of $2.2 billion for 2012. Nike’s stock price is also flying high, elevating the grant-date value of Parker’s equity.

CEO pay and company performance seesawed wildly during the past five years‚ mostly in synch‚ but sometimes not.

Nationally, S&P 500 CEOs saw their median compensation decline in 2009, then rise the next two years, roughly in line with company net income, which shifted higher and lower than pay.

Likewise, average CEO pay for the top 19 companies in Oregon (excluding Nike) fell in 2009, then rose the next two years, increasing an average of 11% per year. Company net income followed the same — more extreme — pattern but only rose an average of 2% per year.

Individual companies, though, often strayed from company earnings. Parker’s percentage change in pay rose three times as high as net income in 2010, fell in 2011 when earnings continued to grow, then shot up 219% in 2012, while net income grew just 4%.

As a share of pay‚ salary has been in retreat for decades.

Don Lindner, executive compensation practice leader for WorldatWork, a nonprofit association focused on compensation education, says that base pay used to comprise about 50% to 60% of CEO compensation until the 1980s.

Then came IRS Section 162(m) in 1992, stipulating that corporations could deduct no more than $1 million of executives’ non-performance pay. To avoid tax liability, annual bonuses rose dramatically, says Lindner, and mega-grants of stock and options were invented, raising the prominence of equity awards. Regulators effectively had placed a limit on salary, but the unintended consequence was to rapidly increase total compensation, albeit in a leveraged form.

Among Oregon’s top 20 CEOs, average salary grew 5% per year since 2007, but as a share of total compensation it declined from 22% in 2007 to 14% in 2011. Salary accounted for just 10% of the S&P 500 CEOs’ 2011 pay. This decline of salary’s share is exacerbated by rising equity awards — much riskier and less liquid than cash.

“To replace base pay, which is a sure thing, with at-risk pay like options, you have to give them a whole bunch more [stock and options], because they’re worth less,” says Lindner.



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