CEO Pay Still Increasing at Large Companies

CEO compensation packages increased approximately $280,000 from 2006 to a median of 8.4 million in 2007 for large companies in the S&P 500. The top ten CEOs combined made more than half a billion dollars last year. Half the that list consisted of leaders of companies whose profits decreased substantially in 2007, according to an AP survey.

Not every chief executive got a raise. Of 316 companies studied, two-fifths lowered their total pay package for CEOs. Falling stock prices accounted for a substantial portion of the decline, especially for companies that provide a higher amount of equity-based compensation.

Compensation increased for CEOs such as Rick Wagoner of Washington Mutual, despite the fact that the company’s stock decreased by 70 percent due to the housing and mortgage-crisis. WaMu’s CEO Kerry Killinger did not receive a bonus for 2007. However board members eliminated real-estate foreclosures and mortgage defaults as factors when deciding whether to award him a bonus this year. Shareholders protested and now board members are revisiting the issue.

Among CEOs receiving some of 2007’s highest pay were CEOs coming into a company after a crisis. Approximately one in ten CEOs in the Standard & Poor’s 500 were new to the position last year. John Thain at Merrill Lynch & Co. and Vikram Pandit at Gap, for example, were well-compensated for taking over faltering companies in 2007, according to the AP survey.

Thain was paid $83.9 million in 2007, making him the highest paid CEO of the 410 companies in AP’s database. Pandit was paid $3.16 million and awarded $102 million in cash and stock options in January. He took over after CEO Charles Prince stepped down amid the credit-crisis. Murphy replaced CEO Robert Fisher to revamp Gap’s sales. He was paid $39 million in 2007.

Of all the CEOs in the report, Yahoo’s Jerry Yang received the lowest compensation totaling $1 million. Last June, he succeeded Terry Semel, who left the company with $71.7 million in total compensation.

Tom Donaldson, an ethics and law professor at the University of Pennsylvania’s Wharton School, believes that it remains to be seen whether these CEOs will be worth their high price tags. He told said to AP, “If you have some sense of what you're buying, you compare and buy the best quality for the price." But if your company is in crisis, he said "You don't have time to look, don't have time to compare. It's a strange and imperfect market."

CEOs taking over troubled companies have yet to prove themselves in the long-run. If Thain, Pandit, and Murphy can turn their companies around, then the compensation can be viewed as a small percentage of overall earnings. Otherwise, the disparity will be yet another factor on a growing list of criticisms facing CEO compensation.