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CEO pay grew an astounding 943% over 37 years, from 1978-2015, vastly outpacing growth in the cost of living, the productivity of the economy, and the stock market.
The third report in the series,
The 100 Most Overpaid CEOs: Are Fund Managers Asleep at the Wheel?
highlights the forces behind disproportionate pay and the fund managers who continue to approve these pay packages.



Annual meeting April 25

In 2016, IBM CEO Ginny Rometty received a 65% increase in total disclosed compensation: $32.7 million. A significant portion of the increase was due to a large stock option grant. Companies with large option grants sometimes contend that the figure in summary compensation tables overestimates the value of options. They rightly note that options only have value when stock price increase is complicated stuff: Myron Scholes, after all, won the Nobel prize for Economics in 1997 in part for his role in creating the Black-Scholes method. In this case, however, experts believe the value as presented may be an understatement.

As analyzed by ISS and further by Melin Anders of Bloomberg, IBM’s calculation of stock options – the same it has used for many years but highlighted this year by a grant of 1.5 million options valued at $12.1 million — is problematic. “Based on [ISS] calculations, the award [as estimated by the company] is almost 60 percent below the proxy adviser’s own ‘fair value’ estimate of about $29 million. That’s the biggest gap for S&P 500 companies that granted options to executives last year.” Melin also points out that the option award was granted at near the company’s five year low trading price.  Although there were price increase criteria attached, the stock price has since recovered enough that those have already been met.

Even without this analysis of option value, there’s a growing consensus that Rometty is overpaid. Michael Hiltzik wrote a great column this year calling her package, “proof that IBM continues to set the standard for overpaying its CEO for mediocre performance.”

Indeed, IBM appeared on our list of companies with overpaid CEOs last year as well.  In 2015 Rometty received a $4.5 million bonus, up $900,000 from 2014. This high pay came amidst falling profits and revenue.

This year her bonus increased again, by $400,000. In a document IBM filed at the SEC this month the company noted that, “The long-term incentive plan paid out at 32% for the 2014-2016 period due to lower operating EPS and free cash flow performance in the three year period.” However, it is critical to note the way EPS is influenced by stock buybacks.

A stock buyback is just what it sounds like: a company buying back some of its stock in the open market. There are times it may be appropriate, if the shares are undervalued and there’s really nothing better the company can do with the cash. But it also reduces the number of shares out there, making EPS look better by lowering the number of shares in the denominator of the fraction. Robert Ayres has as pithy an explanation of buybacks as I have seen: “When compensation is tied to share price, [executives] are rationally driven to take advantage of any legal mechanism to drive share prices up during their tenure.”

Ayres uses IBM as an example in “The Economic Consequences of Shareholder Value Maximisation” on the flaws of linking compensation primarily on stock performance rather than company performance.

He writes:

“Since the 1990s, blind dedication to Shareholder value maximization (which continues) has led to unending emphasis on cost-cutting (by job cutting), lack of product innovation and the use of cash to finance corporate stock buy-backs. Between 2005 and 2014, IBM delivered US$32 billion in dividends to shareholders and spent US$125 billion buying its own shares (to prop up the share price), while investing only US$111 billion in capital investment and R&D combined.”

Much more has been written and will be written about larger failures of IBM. Where did the circle start? It could have been when pay for performance was adopted in a narrow way that rewarded stock performance above all else. It could have been when buybacks became an accepted way to prop up stock price. It could have been when shareholder value primacy was widely adopted.

The question is who is going to stop the spiral. Shareholders play an important role with their votes.  A strong, appropriately engaged board should also provide a check.  Some of these larger strategic issues predate Rommety’s promotion to CEO in 2012, though she has been at the company since 1981. There has been a fair amount of turnover in the board, which may be another governance red flag, but there remain five directors who have served more than 10 years. The longest serving director, American Express CEO Kenneth Chenault – himself an overpaid CEO – has been on the board since 1998.  Glass Lewis & ISS have both recommended against the compensation plan, so many shareholders will vote against. We may see significant opposition to directors as well.

Newmont Mining

Annual meeting: April 20

CEO Gary Goldberg has been at Newmont Mining since 2011, becoming CEO in 2013. When Goldberg became CEO the stock price was trading at approximately $41 per share. In 2015 at one point it traded under $20. In 2016, the stock improved, and Goldberg’s total compensation increased 24% percent to $16.5 million. This large upside for improved stock performance represents a great flaw of executive compensation practices, because the inverse never seems to be true.

Indeed, Goldberg’s salary has increased every year, to $1.27 million in 2016. Likewise, with his stock awards, which were $5.9 million in 2014 and $11,778,961 in 2016 ($9,395,636 in performance stock units and $2,383,326 in restricted stock units).

According to press reports, ISS recommends a vote against because, according to a recent press report, “The CEO’s fixed pay and incentive opportunities increased following significant stock price decline.” Further, according to a company with a filing, ISS found that “the [compensation] plan could provide for vesting at target where stock price remains flat over the performance cycle.

Stock awards are a particularly problematic payment in an industry this volatile. The stock at Newmont swung wildly in 2016. Once article notes for example, that, “Over the past year, the stock has traded as low as 11.5 times free cash flow and as high as 31.0 times.” The price used to determine target value of the 2016-2018 awards was $19.04 per share. However, by December 30, 2016, the closing price of the stock was $34.07.

The company notes that such stock awards “represent the single largest component of the officer compensation program.” This is true. The proxy statement goes on to state that it is “aligned with shareholders experience.” That is false. Shareholders purchase stocks at a certain price; long term shareholders hold them through the ups and downs of stock. Executives do benefit considerably when stock price goes up, but face only paper losses based on estimates when the stock falls. Shareholders are unlikely to receive large grants at the bottom of the market, and executives often do.

United Airlines

In a few weeks, United will likely be sending out its proxy statement. Last year it was issued on April 21. But the events of the week inspired me to take a quick look at last year’s statement.

A quick search of the proxy statement filed last year shows that the word “executive” appears 421 times and the word “customer” appears 29 times. The only director whose biography lists customer service is that of CEO Oscar Munoz. More than once, the proxy statement lists responsibilities Munoz had at CSX including “service design, customer service, engineering, mechanical,  and technology.” However, customer service at a freight company is entirely different from customer service at an airline.

As many companies do, United also notes particular expertise of its board members. Here are some excerpts:

Director Caroline Corvi “brings an expertise with respect to the manufacturing of commercial aircraft.”

James Kennedy “brings to the Board a stockholders’ perspective and his expertise in management and finance, particularly as result of his tenure as President and Chief Executive Officer of T. Rowe Price.”

William Nuti “provides the Board with valuable expertise in management, finance and technology, developed during his years of service in the technology industry.”

Laurence Simmons “provides the Board his extensive expertise in finance, corporate strategic transactions and the energy industry. Mr. Simmons is the founder and Chairman of SCF Partners (“SCF”), a firm providing equity capital and strategic growth assistance to build energy service and equipment companies.”

Notice anything missing? The board on the whole seems somewhat tilted toward industry and technology expertise.

To its credit, United has used Customer service as one of the operational metric for determining executive compensation. In 2015, the company reported last year, “customer satisfaction survey results exceeded the target level with respect to the customer satisfaction component of the 2015 Annual Incentive Program awards (representing 20% of the total target opportunity). For 2015, customer satisfaction was measured by monthly improvement over the prior three-month rolling average customer satisfaction survey scores.”

A fundamental question for pay for performance is what the threshold level is set at. As far as I could tell that isn’t disclosed in the proxy statement. It leaves open the question: if something improves from truly dreadful to only dreadful, is it worthy of reward? Clear disclosure is more helpful. Delta’s proxy statement for example, notes its “continued our 1st place performance in fewest Department of Transportation customer complaints among the major network carriers.”

While targets were met on customer satisfaction in 2015, Munoz did not receive a bonus as he had only recently joined the company. Again, we can expect to see the new proxy statement in a few weeks. It will attract a great deal of interest.


Annual Meeting: April 10, 2017

Goodyear had a bad year in 2016. Revenues declined by 8%.  The stock lost value, with total shareholder return at -4.5%.

It shouldn’t be surprising then that the bonus for CEO Richard Kramer decreased from $11,577,753 in 2015, to $9,667,094 for 2016. This declining bonus suggests some allegiance to  of pay for performance.

However, total compensation year over year actually increased. For 2015 Kramer received $19,307,800 and in 2016 he received $19,798,104. How is this possible?

Well, while lowering the bonus, the board raised Kramer’s salary by 18%, to $1.3 million. In explaining the rationale for the increased the boards cited the development and completion of a strategic plan. They also noted that the increase was, “to move him closer to median market base salary rates given his tenure in his current role as CEO.” Increases in salary that seem born of a sense of entitlement, driving up bonus and retirement payments in future years, as these are based on salary.

It also drives up pay at other companies. Next year this 18% increase will be used to justify salary increases elsewhere. Such ratcheting up of pay is always problematic, but particularly so for those who hold funds in indexes. While there might be some who look at the absolute dollar amount of the increase and shrug, shareholders who are long term investors should pay close attention, because the increase will cascade through a system. That’s a part of how we arrived at the place of overpaid CEOs in the first place.

In May of last year State Street Global Advisers put out a report entitled, “Guidelines for Mitigating Reputational Risk in C-Suite Pay” noting that found the stable nature of pay packages for 2015 surprising “when evaluated in the context of poor performance and shareholder returns.” The report identified “methods used by companies to circumvent the pay-for-performance alignment” including the one described above, “Increased base salary and/or long-term stock grants that made up the decrease in short-term bonus payouts.”

Kramer’s stock awards and option awards did increase, though only slightly. Change in pension value was a bigger driver of the total compensation figure. There are those that argue that such increases should not be considered as the variations from year to year are driven by external factors. However, it does represent real money available to this CEO and not to those who do not have pensions. Kramer’s total pension is currently valued at nearly $18 million dollars.

I’d love to see someone do a deeper analysis of the calculation of the bonus which, while it didn’t meet target, was paid above threshold. The company discloses a significant number of exclusions that were used in calculating the EBIT and free cash flow figures. While they generally seem in line with what other companies do, a careful examination is merited. Also of note is the company’s large stock buybacks. As put it in a recent article entitled, Worrisome Headwinds at Goodyear Tire, “The company’s strategy rather seems like a bit of bribery. Our sales and profits are going down, but we’re going to pay you dividends and increase share repurchases to ‘enhance shareholder value.’”

Ralph Lauren

When companies have news they want shareholders to miss they often file it with the SEC late on a Friday afternoon. This was the case with the new employment agreement for Ralph Lauren, who is executive chairman and chief creative officer for the company that bears his name. Michelle Leder has made the “Friday night dump” her specialty and it was through a tweet that I learned about this, and followed up with some Monday morning mining.

While once common, employment agreements with excessive guarantees have grown rarer. Many shareholders vote against pay when packages are of even three years. On March 31, 2017, the board of Ralph Lauren signed an agreement with Ralph Lauren that will last for five years, through April 2, 2022. “His annual base salary will continue to be $1.75 million, and he will continue to have a target bonus opportunity in the amount of $6 million for each fiscal year.” These are extraordinarily generous guarantees, particularly given that the company also pays for a CEO.

However, the most alarming things in the agreement is what happens if Lauren – who is currently 77 years old — leaves employment for any reason, including disability. In terms of salary and bonus, the treatment is routine, though still generous. Much more problematic is treatment of unvested restricted performance share units (“RPSUs”) and PSUs which “will vest at target in their entirety on the date of his termination of employment.” Similar vesting will occur if the company fails to extend the contract after in 2022.

In the last proxy statement the board reported that it had, “changed our equity program so that 100% of our NEOs’ annual equity awards will be performance-based.” But this, and other suggestion that vesting is “based on achievement” are simply not true for Ralph Lauren given the size of the loophole in small print in the new employment contract.

The PRSU generally vest based achievement of earnings per share (EPS) metrics; the PSUs include long-term metrics such as cumulative EPS.  The company reports that performance level that needed to be achieved in order for the Fiscal 2016 PRSUs to be earned at target was an EPS of $7.01 per share; actual achievement was $6.42. A look at the 2015 proxy statement shows that the RPSUs also did not achieve target over the 2013-2015 time period. Yet, if Lauren retires for “disability” in the next five years his shares will vest 100% at target no matter how the company performs.

Ralph Lauren annual meeting likely won’t be held until August. Shareholders should mark their calendars to vote against the package and the compensation committee directors who approved it.

Wynn Resorts

Annual meeting: April 21, 2017

One of our most overpaid CEOs from As You Sow’s list last year just got a big raise. Stephen Wynn’s total compensation increased from $20 million to $28 million. His stock award and non-equity incentive compensation increased by an even $4 million each from 2015 to 2016.

Wynn Resorts has been on our list for three years. The CEO is paid more than peers. The pay is out of proportion to the value delivered: HIP Investor’s regression analysis found that he was paid an excess of nearly $9 million in 2015. (See our report for details). Since shareholders last voted on this pay package in 2014, the board has reduced the CEO’s salary — though it remains among the highest for S&P 500 companies — but continues to award large incentive payments and excessive perquisites

Wynn’s 2016 total incentive compensation is $25 million – divided between cash and stock – the maximum allowed by the plan. There were three performance criteria: 2016 Adjusted Property EBITDA, (b) Forbes Five-Star distinction for specific properties, (c) Wynn Palace opening on or before December 31, 2016. It is unclear whether these criteria, particularly the latter two, are in shareholders’ long term best interests. In setting such criteria, the board focuses the executives on meeting it at any cost, and there reports  hint at long-term issues with investment in Macau.  Indeed, the company’s own 10k lists one of its risk factors as: “Visitation to Macau may decline due to economic disruptions in mainland China, restrictions on visitations to Macau from citizens of mainland China and the anti-corruption campaign.”

Shareholders have seen value decline over the past five years. While a heading in the proxy statement titled “Long-Term Total Stockholder Return Performance Remains Strong” it is followed by a chart that shows only the performance of the last year. Indeed, the stock trades at less than half of what it traded for in February 2014.

Insulated from shareholders

We have found that the most overpaid CEOs are often insulated from shareholder votes in a number of different ways, and Wynn Resorts falls into that category. There is a large insider ownership stake: Stephen Wynn owns 11.8% of the shares and Elaine Wynn owns another 9.4%. I wrote about Elaine Wynn, the twice-married, twice divorced, co-founder of the hotel and her attempts to get renominated to the board in 2015.

Vanguard holds 7.6% of the company; likely primarily due to indexed funds. According to one recent article  “In 2016, investors pulled more than $380 billion from actively managed mutual funds while pouring almost $480 billion in passive investments.” Traditionally, such passive investments have not been diligent in voting against compensation packages.

Finally, Wynn Resorts allows shareholders to vote on pay only once every three years. The company claims this triennial vote is “the appropriate time frame for the Compensation Committee and the Board of Directors to evaluate the results of the most recent advisory Say-on-Pay vote, to develop and implement any adjustments to our executive compensation programs that may be appropriate in light of a past advisory vote on executive compensation.”

Directors at all but a handful of companies in the S&P 500 have shown themselves capable of annual evaluations not just of votes, but of compensation practices. Shareholders would be advised to support an annual vote on pay.

Wells Fargo

Annual Meeting: April 25, 2015

When it was first announced that Wells Fargo would not be giving bonuses to the named executive officers this year journalists praised the board. It was seen as a sign of accountability in response to widespread consumer fraud charges. That scandal, spurred in part by an incentive-based corporate culture, resulted in a $185 million settlement with the Consumer Financial Protection Bureau, and in the departure of over 5,000 employees, including a few senior executives.

In response to the outcry, the board has taken some steps to limit payouts, particularly for departed CEO John Stumpf.

However, Wells Fargo still has extraordinarily high executive compensation. The actions taken do not go far enough to restore investor trust. President and CEO Timothy Sloan’s pay package grew 17% from last year to $13 million. Sloan did not receive a bonus this year, but the value of his stock award increased from $8 million to $10.5 million. The increase is more than double the $1 million non-equity incentive compensation award he received last year.

It is true that if the company fails to meet performance criteria those performance shares may be worth less than estimated, but they may also be worth more. The footnotes on the summary compensation table note that at the 150% of target award Sloan would receive 327,444 performance shares with a current value of $15,750,056.

In addition, Sloan has a hefty salary. In March of 2016, when he was promoted to president, Sloan’s salary was increased from $2 million to $2.4 million. As we noted in our analysis then, this was not only extremely high for a president of a company but was higher than that of the vast majority of CEOs of similarly sized companies.

Compensation is only one issue shareholders will vote on at the upcoming annual meeting.  The Sisters of St. Francis of Philadelphia and sixteen co-filers have filed a proposal urging the company to report on the root causes of the fraudulent activity and steps taken to improve risk management and control process. Other proposal topics include a call for a report on lobbying; a proposal on gender equity; one on breaking up the bank; and, finally, one calling for adoption of an Indigenous People’s Rights Policy spurred by Wells’ funding of the Dakota Access Pipeline.

For many years to come, Wells Fargo will be held up as an example of impacts of poorly designed incentive plans and the very real impacts of reputational damage. The full extent of the damage is unknown, but it is likely that the Wells Fargo annual shareholder meeting will likely be one of the most interesting of 2017.

Pay Ratio Redux

Ratio Redux

When Dodd-Frank was passed in Congress and signed by President Obama in 2010 a long battle began to get a particular portion adopted: one that allows shareholders to see the ratio between the CEO and a median employee. Finally, in 2015 it was passed. Here’s something I wrote at the time which gives background to the bill.

But as with so many other areas, the Trump administration is opening previously settled ground for new contests.

Anyone can write a letter: if you have a 401k or pension fund then you are a shareholder your opinion matters.

To submit, simply: go to Piwowar’s statement, there’s a link to a form set up just for this regulation (look for “submission of detailed comments”): Or you can email: and put “Pay ratio disclosure” in subject line.

The letters ultimately are posted on-line. You can read some of them here if you are looking for inspiration.

Also, below I am pasting the copy of the letter As You Sow submitted today:


Re: Reconsideration of Pay Ratio Rule Implementation

Dear Chairman Piwowar,

As Program Manager of As You Sow’s Power of the Proxy initiative, I am writing to provide our comments in response to the February 6, 2017 public statement regarding Reconsideration of Pay Ratio Rule Implementation.

Founded in 1992, As You Sow promotes environmental and social corporate responsibility through shareholder advocacy, coalition building, and innovative legal strategies. Our efforts create large-scale systemic change by establishing sustainable and equitable corporate practices.

As You Sow was founded on the belief that many environmental and human rights issues can be resolved by increased corporate responsibility. As investor representatives, we communicate directly with corporate executives to collaboratively develop and implement business models that reduce risk, benefit brand reputation, and protect long term shareholder value while simultaneously bringing about positive change for the environment and human rights.

We write today to encourage the SEC to maintain its scheduled implementation of 953(b). The provision was a portion of the Dodd-Frank Wall Street Reform and Consumer Protection Act passed by Congress and signed into law on July 21, 2010.

The implementation of this section of the law — requiring companies to disclose a ratio between the pay of the CEO and a median employee — was slowed by corporate opposition. The SEC commissioners finally approved the rule on August 5, 2015. At that time Larry Mishel of EPI noted, “The delay shows the power of corporate lobbyists, but the finalizing of the rule is a win for the American people.” As You Sow believes strongly that any further delay on this rule represents nothing but a victory for corporate lobbyists.

The first of the SEC’s missions is to “protect investors.” That statement further notes that, “Companies offering securities for sale to the public must tell the truth about their business.” We believe that reporting pay ratio is an important part of the truth that we, as investors, deserve to have.

The February statement appears to be a response to issuers (the companies themselves), and not investors. According to the statement, “issuers have begun to encounter unanticipated compliance difficulties” Frankly, we are surprised that there are “unexpected” difficulties given the number of potential difficulties identified by companies as the rule proceeded through the process.

However, past pattern has shown that issuers decry every potential regulation. I recall, for example, the extraordinary response from many corporations nearly 15 years ago when investors sought to have options expensed. I hear many echoes of letters written then being raised today in opposition to all things Dodd-Frank.

In contrast to the letters from corporations and consultants opposing the initial pay ratio rule there were nearly a quarter of a million of letters submitted in favor of the ratio. Shareholders, both individual and institutional, explained their interest in the pay ratio data during the initial rule making and many are doing so again.

We believe the disclosure will help shareholders see which companies view employees as resources, and not just as costs. Companies universally acknowledge the need to attract and retain officers and executives when justifying compensation packages. The pay ratio, when compared to that of peer companies, will assist shareholders in seeing whether the attraction and retention of other employees is a similar priority.

Poorly designed executive compensation programs can incentivize a short term focus. The long term sustainability of the company depends on so much more than the individual in the corner office.

We urge you to maintain your current schedule.


Disney Vote

Walt Disney

Annual Meeting: March 8, 2017

One of the earliest annual meetings of the proxy season is at Disney, which held its meeting on March 8. The vote results were released on March 13.  The advisory vote on pay received support from 83.59 of votes cast. This is a low level of support for such a large company and the lowest level of support at Disney since 2014.

Most companies have fiscal year end dates of 12/31, and these companies are about to file their proxy statements. We are on the cusp of what insiders call “proxy season” when filing begin in full force, followed by annual meetings and votes in April and May. Votes are typically released about a week after the meeting.

Disney’s CEO and Chairman Robert Iger has been listed in our Overpaid CEOs report for the past three years. His most recent total compensation was $43.9 million. This was a slight decrease from the prior year, based on his bonus, but it still left him as one of the highest paid CEOs in the world. In 2016, Disney’s shares were down 0.8% for 2016, the first such annual decline since 2011 according to press reports.

As reported by Fund Votes the advisory vote on pay proposal at Disney received 80.6% support in 2014; 84.2% support in 2015 and 85.1% support in 2016. The median level of support for such a proposal among S&P 500 companies was well over 95% last year.

In this context the support from 83.59 of votes cast shows that shareholders are not pleased. Also, of note, the director who received the 2nd lowest levels of support was compensation committee chair Susan E. Arnold.

The company that asks attendees of its theme park to “put our service to the test,” doesn’t seem to be listening very well to its shareholders.



Annual meeting: April 28, 2017

AT&T recently reported 2016 total disclosed compensation for Chairman and CEO Randall Stephenson: $28.4 million. The company appeared on our overpaid list for last and compensation has increased this year.

I want to quickly highlight an issue from the footnotes. Stephenson received $1.2 million in matching contributions to his 401k and “certain ‘makeup’ matching contributions” in the Stock Purchase and Deferral Plan.

For the 401(k) AT&T offers “substantially all” of its employees the opportunity to defer income. AT&T matches 80% of employee contributions, limited to the first 6% of cash compensation. Executive officers only receive a match on base salary. Stephenson’s base salary is $1,791,667.

The chart on “Nonqualified deferred compensation,” page 81 of company proxy statement filed on March 10 shows that Stephenson “deferred” almost $6 million of his pay in 2015. Executive officers at AT&T can defer 30% of their salary and up to 95% of their short term awards.

Deferred pay offers those executive who make more money than they spend in a year, the option to receive the money at some point in the future. In addition to providing a guaranteed rate of return, deferring compensation saves executives’ on their taxes.

Here’s how it works according to the proxy:

“Participants receive a 20% match in the form of additional deferred share units; however, with respect to short-term awards, officer level participants receive the 20% match only on the purchase of deferred share units that represent no more than their target awards. In addition, the Company provides “makeup” matching contributions in the form of additional deferred share units in order to generally offset the loss of match in the 401(k) plan caused by participation in the SPDP and the CDP, and to provide match on compensation that exceeds Federal compensation limits for 401(k)”

Bottom line: the aggregate balance of Stephenson’s deferred compensation at FYE was $42 million. The present value of his accumulated pension benefits is $54 million. This clearly goes beyond helping a CEO plan for his retirement; it is a wealth transfer to future generations.

Nice match if you can get it. But is it something shareholders really need to pay for?