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Most chief executives of major corporations earn millions of dollars in base salary, but that’s not all they get (just take a look at how the highest-paid CEOs in America make their money).
Total CEO compensation includes perquisites, bonuses, and stock options, among other things.
In fact, the great bulk of CEO compensation does not come from base salaries. Even the highest CEO base salaries fall under $10 million. It’s all the other goodies that push total CEO compensation miles past $10 million.
Research firm GMI Ratings does an annual study of the total compensation of U.S. CEOs to determine just how much money each actually ends up within the course of a given calendar year.
Last week, GMI released the results for 2012 – and the numbers may stun you.
The total CEO compensation for two chief executives exceeded $1 billion, and every CEO in the top 10 walked away with more than $100 million.
This posh group collectively raked in a combined $4.7 billion in 2012. Tellingly, about $3.3 billion of that was associated with stock options.
“While stock options are intended to align the interests of senior executives with shareholders, the unintended consequence of these grants is often windfall profits that come from small share price increases,” wrote senior research analyst Greg Ruel in the GMI report.
GMI said median CEO compensation of the entire sample of 2,200 chief executives rose 8.47% from 2011, while those running Standard & Poor’s 500 companies enjoyed a 19.65% increase.
Meanwhile, the average American worker lost ground, with median household income falling 0.2% in 2012. That’s 8.3% lower than where the median household income stood in 2007, before the Great Recession began.
Heidi Moore, economics editor at The Guardian, told Yahoo Finance’s The Daily Ticker that
the disconnect between compensation for workers and CEOs is actually bad for the U.S. economy.
“It’s potentially one of the reasons our economy is not moving forward,” she said. “You’ll find that inequality usually rises as an economy struggles.”
While it’s true that “hard work does lead to great benefits, it’s also important to remind people that they often overestimate what their contribution is to overall outcome to the company or a project,” Moore said.
With that said, here are last year’s 10 biggest winners in total CEO compensation…
Total CEO Compensation: The Highest Paid CEOs in America
It should not have been too hard to guess that Facebook Inc.’s (Nasdaq: FB) Mark Zuckerberg was by far the most well-compensated CEO in 2012.
Zuckerberg took home a mind-blowing $2.28 billion in total CEO compensation last year. And that followed a disastrous IPO that resulted in a 30% decline for the Facebook stock price.
The other billion-dollar man was the lesser-known Richard Kinder of Kinder Morgan Inc. (NYSE: KMI). His total CEO compensation was $1.12 billion.
Notably, Kinder Morgan stock didn’t outperform the market, either, rising only 12.61% last year compared to an increase of 15% for the S&P 500.
Actually, as you look at the list of the executives with the most total CEO compensation, it’s hard to say any of them deserved such outsized rewards. Only Mel Karmazin of Sirius XM Radio (Nasdaq: SIRI) and Marc Benioff of Salesforce.com (NYSE: CRM) oversaw stock gains of more than 50% on the year.
Given the obvious excesses of total CEO compensation, you’d think shareholders might want to rein it in. But time and again, they’ve shown no desire to curb their CEO’s pay.
The Dodd-Frank Act of 2010 required companies to conduct shareholder votes on CEO compensation – the so-called “Say on Pay” provision.
And shareholders have generally voted with indifference to exploding CEO compensation. In 2011, only 1.4% of such votes succeeded; in 2012, only 2.6%; and so far in 2013, just 2%.
And those votes were typically less of a reaction to excessive pay than a no-confidence vote as a result of the weak performance of the CEO.
Total CEO compensation figures to keep rising because most shareholders don’t want to be the first company to cut CEO pay and potentially lose a leader they like to a competitor.
That means CEO compensation will continue to be determined by each company’s board of directors, which, conveniently enough, tend to consist almost entirely of CEOs from other companies.
The mutual back-scratching by the members of this elite “club” ensures that total CEO compensation will just keep skyrocketing.
The ever-widening gap between total CEO compensation and the pay of the average worker isn’t just maddening, it’s dangerous. Here’s why.
- Money Morning:
Top 10 CEO Severance Packages
- Money Morning:
CEO Pay Now $7,000 an Hour – 350 Times the Average Worker’s
- Cadwalader Quorum:
“Say on Pay” Turns Three – And Directors Should Not Fear Arbitrary Rejections
- GMI Ratings:
GMI Ratings’ 2013 CEO Pay Survey Reveals CEO Pay Is Still on the Rise