CEO Pay Climbing At A Slower Pace

April 20, 2006 ( - The salaries that companies pay their chief executives have been met with increasing condemnation by many institutional investors and others in recent years, but that did not stop CEO pay from climbing last year, according to a new study.

The median CEO pay climbed 11.3% in 2005 and wages for CEOs at the largest firms rose 3.7% to a median of $5.2 million, according to a survey of more than 550 companies by The Corporate Library, a Maine-based governance firm.

The biggest payouts to CEOs were those that came from cashing in on a large number of stock options, reports the Associated Press.

This lands Capital One Financial Corp. head Richard Fairbanks on the top of the list, with an $18 million increase because of newly issued stock options, and Bruce Karatz, CEO of builder KB Home Inc., who snagged $118 million in cashed-out stock options.

In many cases, such gains went to executives who have held on to options for years, waiting for their stock price to rebound. In the last few years, many companies have cut back on the number of options they issue, moving to restricted stock and long-term incentive payouts, according to the wire service.

According to the governance firm’s research, one example of executive pay not being tied to corporate performance is AT&T’s chief Edward Whitacre, who was paid $17.1 million last year, a 15% increase. The raise brought his total pay over the past five years to more than $85 million, despite the fact that shareholder return – the potential gain to investors who own its stock – is down 40% over that period, according to analysis by The Corporate Library.

Even if companies have lagged in their efforts to rein in executive compensation, they will be forced to be more forthcoming, with Securities & Exchange Commission requirement to take effect next year that will compel more disclosure of executive pay packages (see SEC Unveils Proposed Exec. Comp. Disclosures Mandate ).

The subject of CEO pay has been the aim of several recent surveys, with one finding that more than one in four companies granted their CEOs raises of at least 25%, according to a survey of nearly 200 large firms by compensation analyst Equilar Inc. Still other surveys highlight the fact that the US has the highest paid CEOs in the world (see Mercer: US Exec Salaries Lead the Globe ).

According to the Equilar survey, major companies that awarded their CEOs pay raises of between 25% and 50% averaged total shareholder return of 7.4%. Companies who gave their top executives raises of more than 50% averaged total shareholder return of 11.1%, according to the analysis of the pay packages at 197 large firms.