Shareholders OK with local CEOs' pay
In the eyes of Paychex Inc. shareholders, it's safe to say, CEO Martin Mucci is paid fairly.
At the Penfield business services giant's annual shareholder meeting last month, they voted overwhelmingly — 93 percent of votes cast — to approve the $2.1 million in salary and cash incentives plus $3.9 million worth of stock and options he got paid last fiscal year.
Huge majorities of Xerox Corp. stockholders similarly gave thumbs up in May on the $2.4 million in salary and cash incentives CEO Ursula Burns was paid the year before, as did huge majorities of Eastman Kodak Co. shareholders that same month to the $4.5 million in cash and $2.2 million in stock paid in 2013 to then-CEO Antonio M. Perez.
While the princely sums paid many CEOs is a hot-button issue with many Americans, a Democrat and Chronicle analysis of the 15 largest publicly traded companies of local interest found that in their most recent proxy votes, shareholders readily shoveled large paychecks at the top executives. The so-called "say on pay" votes passed anywhere from with 76 percent support for Windstream Holdings Corp. to the 99 percent support received by Constellation Brands.
The same happened at company after company across the country. According to corporate executive compensation consulting firm Equilar, "say on pay" votes typically win pretty handily, with seven in 10 companies in the Russell 3,000 seeing such votes get 90 percent shareholder approval or better the past three years. And rarely do shareholders say "no" — the number of unsuccessful "say on pay" votes annually among the Russell 3,000 is in the range of 2 percent, according to Equilar.
All of that support comes despite the fact Americans — and pretty much everyone worldwide — seem to think CEOs are grossly overpaid.
A joint study by researchers at Harvard Business School and Bangkok's Chulalongkorn University found that Americans typically believe CEOs earn about 30 times what the average worker does in the United States, when it's closer to 300 times. The researchers found perception/reality gaps in 15 other nations, though it was far more pronounced in the United States than anywhere else.
The AFL-CIO for years has decried CEO pay while pushing for a higher minimum wage and raises for lower-paid hourly workers, particularly in the service sector.
The gap between the average worker and the top bosses is growing to a chasm. Between 1978 and 2013, CEO compensation, when adjusted for inflation, went up nearly 1,000 percent — while the typical worker's compensation went up roughly 10 percent during the same time period, according to the Economic Policy Institute. Meanwhile, the CEO-to-worker compensation ratio went from 20-1 in 1965 to a peak of 383.4-1 in 2010 before moderating back down to 296.9-1 in 2013.
So why the disconnect?
"The people who are getting upset about the levels of pay aren't necessarily your large institutional investors," said Aaron Boyd, director of governance research at Equilar. "The Occupy Wall Street movement was not founded by Vanguard and the large institutional investors who hold large (stakes) in companies."
And while the investment community has concerns broadly about excessive pay packages, Boyd said, "It's a little like the dynamic with people hate Congress but love their congressman. You can say in general, 'I don't like CEO pay,' but when you look at a particular CEO's pay package and how it's constructed and compare it to the size of the company, it's usually not as big an issue."
Not every shareholder is happy with CEO pay packages.
RadioShack Corp., going through a massive restructuring that includes numerous store closings, saw 53 percent of shareholders vote in June against the top executives' pay packages.
And after seeing its "say on pay" votes fail in 2012 and 2013, Abercrombie & Fitch split the job of CEO and chairman, added two outside board members to its compensation committee, created a new chief financial officer, and started looking for new brand presidents to oversee its Hollister, Abercrombie & Fitch and abercrombie brands. The result? At its June 19 shareholder meeting, 96 percent of shareholders approved.
"A lot of the large institutional investors are not looking at CEO pay in terms of relative to the median worker," said Boyd. "They're looking at it as whether they're getting the bang for their buck. (Big) shareholders are concerned with the alignment of pay with the performance of the company. They recognize the value in a really good CEO and the potential billions of dollars they can return to shareholders."
When Paychex was asked about how it views "say on pay" votes, Mucci responded: "We take our shareholders' voice very seriously, and we are pleased to have such a strong statement of their support for us, with the 93 percent approval of our say-on-pay vote. We take this message to mean that shareholders are very supportive of our board of directors and management team, especially with respect to our pay-for-performance practices.
"The Paychex management team, the compensation committee for the Paychex board of directors, and the board itself do pay close attention to the vote. We see it as an indicator of our shareholders' support for our compensation programs and how well they are tied to our performance. In fact, 86 percent of CEO compensation is tied to performance, including both short- and long-term performance, and we have caps on award payouts and stock ownership guidelines. Also, we don't have employment agreements or perks for executives that are different than the rest of our employees."
MDANEMAN@DemocratandChronicle.com
Background
"Say on pay" votes by a company's shareholders are the result of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
When shareholders receive a company's annual proxy statement, it includes — among other things — detailed numbers of what the company's top executives were paid the year before, as well as an extensive justification by the company as to how it arrived at those figures. For example, Xerox's 2014 proxy statement includes nearly 40 pages of details about its executive compensation.
The votes are themselves symbolic and nonbinding, though companies receiving close votes or majority "no" responses typically see that as a black eye and take steps to adjust their pay packages.