NEW YORK – More companies are listening to investors’ criticism that they overpay chief executives, but that doesn’t mean businesses have fixed the problem.
CEO pay continued to climb in 2005, although not nearly as rapidly as in recent years, new surveys show. The median pay to CEOs rose 11.3 percent, according to a survey of more than 550 companies by The Corporate Library, a governance firm.
For CEOs at the largest firms, however, pay rose 3.7 percent to a median of $5.2 million.
But the size of the typical CEO’s raise varied greatly by which companies were counted, and overall figures obscure wide variations in pay. A closer look at individual companies show that more than one in four granted their CEOs raises of at least 25 percent, according to a survey of nearly 200 large firms by compensation analyst Equilar Inc.
The newest raises for top executives mean the pay of the average CEO at a Standard &Poor’s 500 firm is now 430 times that of the average U.S. worker – more than ten times what it was in 1980, according to the AFL-CIO.
Once again, the largest payouts went to CEOs cashing in huge numbers of stock options.
Tops on that list was Richard Fairbank, the chairman and chief executive of Capital One Financial Corp., the credit card issuer. Fairbank, who earned no salary or bonus, was paid almost entirely in a grant of new options this year, valued at just over $18 million. That paled, however, with the $249.3 million Fairbank earned last year by exercising previously issued options.
The list of those who profited most handsomely from cashing in options also included Bruce Karatz, the CEO of builder KB Home Inc., who pocketed $118.4 million.
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.
The days of huge options payouts are hardly over. More than 80 percent of large companies still include options in CEO compensation. But gauging the suitability of CEO pay packages increasingly requires investors and directors to focus on the size of future grants, rather than leftovers from the past, compensation experts say.
And even as more companies embrace changes designed to link CEO pay to executives’ proven ability to deliver results over time, serious disconnects remain, experts say.
“I think some of the companies are trying to improve the situation,” said Paul Hodgson, a compensation expert for The Corporate Library. “To be honest, if I can figure it out, I don’t see why people who are leading some of the largest companies in the country shouldn’t be able to figure it out as well.”