For the first time ever, the 10 highest-paid chief executives in the US received more than $100m in compensation last year, and two took home billion-dollar paychecks, according to a leading annual survey of executive pay.
Mark Zuckerberg, Facebook's co-founder, was America's highest-paid boss in 2012, according to GMI Ratings annual poll of executive compensation, released on Tuesday. Zuckerberg's total compensation topped $2.27bn – more than $6m a day. His base salary was $503,205 but the vast majority of his enormous pay package came from exercising 60m Facebook share options when the company went public last year.
Richard Kinder, the CEO and chairman of energy firm Kinder Morgan, had a base salary of just $1 in 2012 and received no other bonuses. But he made $1.1bn selling restricted stock. The payout follows a nearly $60m profit from stock in 2011.
Half of the top 10 are company founders. The rest are appointed executives. The no 3 slot really belongs to Gregory Maffei, who appears twice in the list as CEO of Liberty Media and Liberty Interactive. He reaped a combined $391m from the two posts.
All told, the top 10 CEOs in this year's poll took home over $4.7bn between them, and for the first time ever, none earned less than $100m.
"I have never seen anything like that," said Greg Ruel, GMI's senior research consultant and author of the report. "Usually we have a few CEOs at the $100m-plus level but never the entire top 10."
Father Seamus Finn, a corporate governance expert at Missionary Oblates of Mary Immaculate, said the numbers were "ridiculous".
"It's an amazing number. Who knows how compensation committees come up with them?"
Finn, who has campaigned against what he sees as excessive remuneration at companies including Goldman Sachs, said boards often argued that they would lose talent unless they paid top management huge sums.
"But I've seen no evidence of that," he said. "These huge pay deals are seldom linked to shareholder returns."
Nearly all the outsized gains came from stock options and other share-related compensation. The top 10 made $3.3bn in 2012 on stock option profits and the vesting of restricted stock. Cash bonuses totalled $16.2m.
Overall, GMI's poll of pay and other forms of compensation for 2,259 US CEOs found an average rise of 8.47%, less than the double-digit growth they have enjoyed for the past two years. But the average hides a more complex picture. This year's top earners far outstripped those below them by making huge fortunes cashing in share options as the stock markets bounced back.
The report further illustrates the widening gap between CEO pay and that of the average worker. According to the US census bureau, median household income, adjusted for inflation, was $51,017 in 2012, broadly unchanged from 2011.
Wages for the average household have fallen about 9% from an inflation-adjusted peak of $56,080 in 1999. The census figures show a sharp recovery for those at the top of the wage scale as those at the bottom continue to see falls.
From 2009 to 2012, average real income per family grew modestly by 6.0%, according to a report issued last month by Berkeley University pair Thomas Piketty and Emmanuel Saez. However, the gains were very uneven. The top 1% incomes grew by 31.4%, while the bottom 99% incomes grew only by 0.4% from 2009 to 2012. The top 1% captured 95% of the income gains in the first three years of the recovery.
The disparity is noticeable even among the 1%, where riches accrue to the very wealthiest at an even faster rate than those below.
The average pay package of an S&P 500 chief executive last year was $13.7m, according to GMI. For those in charge of S&P small cap companies, it was $3.5m. The average rise in compensation for CEOs of the Russell 3,000 – which represents about 98% of all public US companies – was 8.47%. For the Russell 1,000 – measuring the top 1,000 companies – it was 15.47%.
Base salaries, bonuses and other forms of compensation were largely unchanged in 2012. The survey found that the outsized pay increases experienced by some CEOs came from the exercise of large blocks of stock options and the vesting of outsized restricted stock grants.
"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," GMI said in its report.
"With option grants numbering in the hundreds of thousands or even millions, CEOs at large companies in particular are able to profit by the millions for any positive gain over the strike price of their options. Furthermore, as Mark Zuckerberg showed when he sold $1bn worth of stock at Facebook's IPO, these paper profits can quickly be converted into cash through stock sales."
Of the top 10 earners in 2012, all received the majority of their compensation for the year from share schemes.
One executive, Gregory Maffei, appeared twice in the top 10. Maffei received total compensation worth $254.8m as CEO of Liberty Media Corporation and another $136.4m as head of sister company Liberty Interactive. Maffei profited more than $250m on the exercise of 3.1m options at Liberty Media Corporation in 2012.
As head of Liberty Interactive, Maffei exercised an additional 12.3m options for a profit of more than $132m. Added together, his take from the two Liberty companies comes to more than $391m, third place overall.
Ruel said it was evident throughout the list that stock option and restricted stock grants fueled out-sized gains. Zuckerberg's fortune came primarily from the difference between the strike price of his stock options - the price at which he could buy his shares, in his case about six US pennies - and the price of Facebook's stock at the IPO, roughly $38.
Apple's Tim Cook made nearly $140m on the vesting of restricted stock in 2012. In 2011 Cook was granted one million restricted stock units as new compensation for assuming the role of Apple CEO. That particular grant of restricted stock will not start to vest until 2016. Profits made in 2012 were based on the remainder of equity grants from 2008 and 2010.
"A short-term bullish market allows executives to reap large rewards, stemming from equity grants that number in the hundreds of thousands and sometimes millions of units per grant. Rather than a focus on industry and sector-specific metrics that drive growth and shareholder value, compensation committees continue to grant large blocks of equity that will reward any increase in stock price, even as competitors experience the same share increases," said Ruel.
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