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2017-05-27 15:15:03
As C.E.O. Pay Packages Grow, Top Executives Have the President’s Ear

Pay packages for America’s top executives once again climbed in 2016 after slipping the year before.

Perhaps the pay surge reflects the times: Stocks are coming off a strong run. Unemployment is low. The economy is percolating.

And President Trump is not only promising to roll back what he calls excessive business regulations but also listening keenly to what corporate America has to say. Since taking office on Jan. 20, the businessman-turned-politician has met with hundreds of executives, including at least 41 of last year’s 200 best-paid C.E.O.s, a New York Times analysis shows.

The biggest winner last year was Thomas M. Rutledge of Charter Communications, who pulled down a $98 million pay package, according to the Equilar 200 highest-paid chief executive rankings, conducted for The New York Times.

Mr. Rutledge, 63, stormed to the front of the pack after closing his company’s mega-merger, a $65 billion takeover of Time Warner and a smaller competitor.

For that, he got a big bump in pay. The year before, his compensation totaled $16.4 million.

This past March, Mr. Rutledge met with Mr. Trump in the Oval Office. The president lavished him with praise for a plan to add 20,000 jobs, although the broad outlines of that initiative had been laid out nearly two years earlier, when the merger was first announced.

This combination — the gains in pay for chief executives, the president’s pledge to deregulate and cut corporate tax rates — sets the stage for perhaps the most consequential moment for corporate governance since the financial crisis of 2008. Rising executive compensation only widens the gap between top executives and most American workers. Mr. Rutledge, for instance, made about 2,617 times the average American worker’s salary of $37,632, according to figures maintained by the A.F.L.-C.I.O.

Discrepancies like that helped fuel the populist frustration that led to Mr. Trump’s election and, in the aftermath of the financial crisis, led to the passage of the 2010 Dodd-Frank financial overhaul act.

Yet the president’s team is considering rolling back a Dodd-Frank rule that, starting next year, would make it much easier for employees at a publicly traded company to compare their own pay to the chief executive’s.

In the meantime, pay for top executives is reaching staggering levels. Mr. Rutledge’s compensation swelled to $98 million largely thanks to a stock options award valued at roughly $78 million. The Charter board awarded Mr. Rutledge that grant, which runs through 2020, about a month before completion of its big merger in May 2016.

Over all, technology company chief executives are well represented on the list of 200 best-paid C.E.O.s, along with executives from financial services companies and media companies. The best-paid female chief executive is Oracle’s Safra A. Catz, whose total package was valued at $40.9 million, making her the eighth-highest-paid C.E.O. in 2016.

Executives in the top 200 who have met with Mr. Trump since his inauguration include Virginia M. Rometty of IBM, Stephen A. Wynn of Wynn Resorts and Marillyn A. Hewson of Lockheed Martin. (The Times recently reported that Jared Kushner, Mr. Trump’s son-in-law, made a telephone call to Ms. Hewson to help seal the deal on a $110 billion arms sale to Saudi Arabia.)

Mr. Trump, who sees himself as the nation’s C.E.O., is hardly the first president to savor the company of corporate executives. But he’s made the pageantry of meetings with C.E.O.s at the White House or at his Mar-a-Lago resort in Florida, which he has dubbed the southern White House, a priority during his first few months in office. The visits have become an opportunity for the president to trumpet the progress he says his administration is making in creating jobs and reducing regulations.

But Mr. Trump may be getting a one-sided perspective on policy recommendations by spending so much time with a large swath of highly paid executives — at least 307 since Inauguration Day — whose views on taxes and economic inequality tend to differ from those of average Americans.

“If you hang around with executives, you adopt a certain view of the world, and it’s a view of the world that seems to be informing his policies,” said Lawrence Mishel, president of the Economic Policy Institute, a liberal-leaning advocacy group in Washington. “It takes a lot to think cutting corporate taxes is central to tax policy when corporate profits are near historic highs.”

Unleashing business by reducing regulations was the subtext of Mr. Rutledge’s meeting on March 24 with Mr. Trump.

At the Oval Office ceremony, Mr. Trump, seated behind a mahogany desk with Mr. Rutledge standing to the side, said the Charter chief executive had shown “truly great leadership” in creating the “fastest growing television, internet and voice company.” Mr. Trump praised the decision by Mr. Rutledge and Charter to move 20,000 call-center jobs from overseas to United States facilities, most of them in Texas.

Justin Venech, a Charter spokesman, said Mr. Trump’s promise of a lighter regulatory environment had enabled the company to commit to locating those new jobs in the United States over the next four years, and to spend billions on broadband infrastructure.

What is clear from the Equilar study is that many C.E.O.s were doing quite well even before Mr. Trump took office. Average compensation for the 200 highest-paid executives list — which changes from year to year — rose about 2 percent, to $19.7 million, from 2015. For the 200 specific individuals on this year’s list, 2016 was especially kind. Those executives saw an average gain of 16 percent over what they received in 2015.

On a percentage basis, Ronald D. Croatti at UniFirst, one of the nation’s largest uniform manufacturers and distributors, had the biggest bump in pay last year. Mr. Croatti, 74, died on Tuesday from complications associated with pneumonia, the company said. His pay package in 2016 rose 740 percent, to $17.69 million, according to Equilar.

Steven Sintros, chief financial officer for UniFirst, said Mr. Croatti’s large compensation package merely reflected the way companies are required to report the valuation of stock grants.

In all, Equilar reports that the median salary for chief executives at all publicly traded companies with annual revenues of at least $1 billion came in at $6.14 million, down slightly from $6.19 million in 2015.

For the large companies in the Standard & Poor’s 500-stock index, a separate survey by the A.F.L.-C.I.O. said, total compensation for chief executives rose about 6 percent, to $13.1 million.

Putting together a list of the best-paid C.E.O.s calls for both science and art, and different methodologies can produce widely different results. (Read how the Equilar figures were calculated.)

Mr. Rutledge of Charter, for instance, came in 13th place in a recent study of the 200 best-paid chief executives by Bloomberg News. That’s largely because Bloomberg, by spreading his stock option grant over a five-year period, reduced the value of his pay package to $62.6 million.

Elon Musk, the brash inventor and chief executive of Tesla Inc., clocked in with a $99.7 million pay package in the Bloomberg survey. But Mr. Musk did not appear in the Equilar survey because Equilar valued stock grants, even ones spread out over several years, at the time they were awarded, as the Securities and Exchange Commission requires.

And Dara Khosrowshahi of Expedia, the champion in last year’s Equilar ranking with a pay package worth $94.6 million, dropped off this year’s list entirely. Why? The answer involves not performance but Mr. Khosrowshahi’s compensation two years ago, when the board rewarded him with a large multiyear stock option grant. Equilar included the entire grant in his 2015 compensation. Last year, his total pay dropped to about $2.5 million, purely in salary, bonuses and other compensation, but with no stock grant, the company’s stock proxy shows. Mr. Khosrowshahi is also a director of The New York Times Company.

The total compensation for Jeffrey R. Immelt of General Electric slid 33 percent in 2016, to $17.7 million, according to Equilar. His payout under the company’s long-term compensation plan fell by about $6 million, and his annual bonus shrank by $1 million to $4.3 million, according to the company’s proxy. In 2016, G.E. shares rose just 4 percent compared with 12 percent for the S.& P. 500.

Mr. Immelt remained on the list, however. Notable extremely wealthy chief executives who did not appear include Tim Cook of Apple and Mark Zuckerberg of Facebook. Both own enormous quantities of their companies’ stock, but their compensation in 2016 was not high enough to qualify.

The list also excludes executives who run big divisions but not entire public companies, even when they make more than the corporate boss.

Digging deeper, Equilar found that Marc Lore, president and chief executive of Walmart’s online operation, had the biggest payout of all executives at publicly traded companies, earning an eye-popping $243.9 million in total compensation.

His total pay was more than 11 times greater than the $21.8 million pay package awarded to C. Douglas McMillon, Walmart’s chief executive.

Another big winner was Sundar Pichai, the chief executive of Google at Alphabet. Mr. Pichai got a compensation package worth just under $200 million. Like Mr. Lore, Mr. Pichai gets a small base salary and most of his compensation is in stock grants. Last year, Alphabet’s board awarded Mr. Pichai stock valued at $198.7 million.

By comparison, Larry Page, chief executive of Alphabet, draws an annual salary of $1 a year. He hardly needs the salary: Forbes estimates the net worth of the co-founder of Google at $45 billion.

The Equilar ranking also does not include billionaire hedge fund managers like Paul Singer of Elliott Management, who earned $590 million last year, according to Institutional Investors Alpha magazine. Mr. Singer visited Mr. Trump at the White House on Feb. 16, and gave $1 million to his inaugural committee.

The Equilar study points up a trend in compensation: Companies are increasingly moving away from cash bonuses and toward stock grants to reward top executives.

Many large investors favor them because they give corporate executives an additional incentive to produce results that increase a company’s share prices. Some critics, however, contend that stock grants and stock options can encourage executives to cut costs and take other short-term steps that don’t invest in a company’s long-term prospects.

Supporters of stock grants are winning. Over the past five years, the median cash bonus awarded to the 200 best-compensated C.E.O.s declined to just under $3 million, from $3.37 million, according to Equilar. Meanwhile, the median value of stock awarded to those chief executives last year was $9.2 million.

“The issue with cash bonuses is that they have become a given for most executives,” said Aeisha Mastagni, an investment officer with the California State Teachers’ Retirement System, or Calstrs. “There are still companies where they award the same bonus year after year, and the stock price doesn’t reflect any value added.”

Ms. Mastagni said a cash bonus “is not money at risk,” as is a grant of stock.

The board at AMC Networks — which has produced hit television shows like “The Walking Dead,” “Breaking Bad” and “Better Call Saul” — has decided to phase out the long-term cash award for its chief executive and other top executives. AMC’s compensation committee decided that a stock award “better aligns the interests of its senior officers with those of stockholders.”

But in 2016, Joshua W. Sapan, AMC’s chief executive, hit the daily double of sorts. Mr. Sapan got a big cash award of $15.1 million, which will become much smaller in 2018 under the board’s policy. But he also got a big stock award, valued at $13.2 million, consistent with the board’s new directive on corporate pay. In all, Mr. Sapan’s total $30.5 million pay package soared 72 percent over 2015, even as the company’s stock dropped nearly 30 percent last year.

The largest stock award on the list, valued at $47.3 million, went to David O’Connor, the C.E.O. of Madison Square Garden. The company’s proxy indicated that the majority of the stock was a “one-time equity award,” which increased his total compensation to $54 million. It provided Mr. O’Connor with a far better year than the New York Knicks, the professional basketball team that Madison Square Garden owns.

No matter how you look at it, the pay gap between corporate executives and most everyone else in America keeps getting bigger.

Some 50 years ago, the typical chief executive made just 20 times what an employee did, according to the A.F.L.-C.I.O. By comparison, it calculated that the average C.E.O. today made 347 times the average salary of an American laborer, as defined by the Bureau of Labor Statistics: $37,632.

Reversing this ever-widening pay gap is a union rallying cry, especially at companies that have been shedding jobs in the United States.

Take Mondelez, the global snack company. Outside the company’s annual shareholder meeting on May 17 in Chicago, union members protested its decision to eliminate 600 jobs at a local factory that makes Oreo cookies, and shift some operations to Mexico.

“Mondelez is emblematic of everything that is wrong with our economy, which works for C.E.O.s, but not for working Americans,” said Brandon Rees, who works in the A.F.L.-C.I.O.’s Office of Investment.

Irene B. Rosenfeld, the company’s chief executive, received a 2016 pay package valued at $15.8 million, according to Equilar, a decline of 13 percent. Michael Mitchell, a Mondelez spokesman, said the company’s compensation program is “well aligned with shareholders’ long-term interests.”

But Mr. Rees said the company’s failure to hit certain performance targets, and a 13 percent decline in Mondelez revenue last year, accounted for the decline in her compensation, adding that her pay package was still too high. He said she had focused too much on cutting costs and share buybacks, and not enough on investments that would keep jobs in the United States.

Amid populist anger over income inequality, the S.E.C. in 2015 required publicly traded corporations to begin providing standard information in 2018 on the disparities between pay for chief executives and rank-and-file workers. That so-called pay-ratio rule would give investors and employees another metric for evaluating C.E.O. pay.

Unions strongly supported the measure, which the S.E.C. was directed to formulate under the 2010 Dodd-Frank financial overhaul rules. Most corporations bitterly opposed it. And in February, with Mr. Trump in the White House, corporations won a victory; the S.E.C. said it would seek a new round of public comments, and might reconsider the measure. The acting chairman, Michael S. Piwowar, who had voted against the pay rule in 2015, announced the change.

Jay Clayton, the newly sworn-in chairman, has not taken a position on the pay-ratio rule. When asked during his confirmation hearing whether he agreed with Mr. Piwowar’s decision, Mr. Clayton said, “I do not know enough about the issue.” But Republicans in Congress have generally voiced support for rolling back much of Dodd-Frank, and Mr. Trump has said he intends to “do a big number” on the law.

Business Roundtable, an association of chief executives of leading United States companies, sent a letter to the S.E.C. on March 23 saying it “has significant concerns” with the pay-ratio rule and recommended that it be “reformulated in a more constructive and less burdensome manner.” The association went on to say the rule “will cause internal discord among employees” and “serves no material, valid or helpful purpose for investors.”

The chairman of Business Roundtable is Jamie Dimon, the C.E.O. of JPMorgan Chase and the 25th-best-compensated chief executive in the Equilar survey. His pay package rose 49 percent last year, to $27.2 million. Mr. Dimon, a member of Mr. Trump’s C.E.O. advisory group, visited the White House on Feb. 3 and has praised the president for awakening “animal spirits” in the economy.

Alan Johnson, managing director of the pay consulting firm Johnson Associates, said he supports the opposition to the pay-ratio rule because it “is a cooked-up thing to embarrass firms with a lot of part-time workers.” He added that focusing on compensation leads to “pay envy” and does not do anything to address a fundamental problem, which is that average workers need better job training and job assistance programs.

But Susan R. Holmberg, a fellow with the Roosevelt Institute, a liberal public policy group, said that if the pay-ratio rule encourages employees to join unions, it is a good thing for workers, since it could lead to future wage gains.

“It magnifies the unequal pay practices,” Holmberg said. “It shows what a company’s priority is, and it triggers people’s sense of fairness.”

Mr. Trump “ran on this populist message,” she said, and it is odd that the administration would be taking another look at the pay-ratio rule, because "C.E.O. pay is the No. 1 populist issue.”

Still, there is some progress on the pay inequality front.

This year, the A.F.L.-C.I.O. Equity Index Fund and the New York State Common Retirement Fund reached an agreement with Regeneron Pharmaceuticals, a biotech company, to include new language on executive and employee compensation in its proxy statement. It says the company is taking a “non-elitist” approach by awarding stock options to all of its 5,500 employees, not just to executives. The change has helped lead the union and the New York pension system to withdraw a proposed shareholder amendment on the issue of pay.

Alexandra Bowie, a Regeneron spokeswoman, said the revised language in the company’s filings did not reflect a change in policy but a “broader effort to include more detailed and accessible language.”

As for Leonard S. Schleifer, the chief executive of Regeneron, his total compensation for 2016 was $28.2 million, almost 40 percent less than the year before, and nearly matching the 32 percent slide in the company’s share price.

Anne Sheehan, director of corporate governance at the California State Teachers’ Retirement System, said company boards need to be sensitive to issues of income inequality. “I have no problem with someone doing well, who creates value,” she said, “but I do think a company and a board as they look at compensation need to make sure everyone down the chain is also benefiting from the performance of the company.”

Boards need to consider not only how much top executives are getting paid, she said, but also whether rank-and-file workers are being compensated fairly too. The crucial question is this, Ms. Sheehan said: “Are they investing enough in the human capital in the company?”