American CEOs enjoy 15% pay rise in second year of double-digit hikes

Boom time for America's top bosses in 2011 contrasts with wider economy, where average wages have been little better than flat

guardian.co.uk, Dominic Rushe in New York, Wednesday 2 May 2012

Edward Breen of Tyco, Michael Johnson of Herbalife and Sam Palmisano
of IBM received pay packages of over $60m. Photograph: AP/Getty Images

America's top bosses have handed themselves double-digit pay rises for the second year in a row, according to interim figures from the most comprehensive survey of CEO pay.

The Guardian's exclusive first look at the research by GMI Ratings reveals that rising share prices helped drive a 15% pay hike for the average US CEO in 2011, with the average compensation package hitting $5.8m.

It comes on the back of a 28% pay rise the year before. The two years of double-digit growth follow two years of decline in 2008 and 2009.

The boom time for chief executives contrasts sharply with the wider economy, where average wages have been little better than flat. A compensation survey by Mercer found US employers planned average increase in base pay of 3% in 2012. Inflation is about 2.7%.

Last year, the census bureau reported that the income of the typical American family had dropped for the third year in a row. The median family income in 2010 was $49.445, 7.1% below its 1999 peak and when adjusted for inflation roughly at levels last seen in 1996.

The news comes as shareholders have begun to challenge outsized pay deals. Last month, Citigroup shareholders voted against the bank's plans to award chief executive Vikram Pandit $14.9m in compensation, including his first bonus since the bank's near-collapse in 2007.

GMI's half-year report looked at the 2011 pay deals for CEOs at 817 companies. The full analysis of 3,000 firms will be available at the end of the year, so it is still to early to tell exactly how lucrative 2011 was, but the interim figures suggest another golden year for top bosses.

The survey also found:

• CEOs in the top 500 companies, enjoyed, on average, total realised compensation of $12.1m

• Annual salary has risen just 3% this year on average compared to 18% last year. But compensation from share schemes has soared.

• The 10 highest paid CEOs made about 78% of their compensation through stock options and other share sales.

• The highest paid CEO so far is Michael Johnson of direct marketing firm Herbalife, who raked in $89,419,474 in 2011.

• Three of the 10 highest paid CEOs thus far in 2012 are from the software industry.

Greg Ruel, the report's author, said overall average salaries had increased only marginally in 2012, but CEOs were now reaping the benefit of share awards they were granted in leaner times. As the stock markets have bounced back, they have made fortunes.

"Last year we saw a return to cash as wages went up. This year, we are seeing the benefit of equities," he said. "The stock markets have risen. It may not feel like that to the rest of us, but if you own thousands of shares, a few bucks on the share price can make a huge difference."

Michael Johnson of Herbalife exercised more than 1.8m stock options in 2011 for a profit of almost $77m. His base salary was $1.23m. Many of these options were awarded between 2003 and 2005, when Herbalife's shares traded below $10. They now trade for over $70.

Samuel Palmisano, CEO of IBM, and Edward Breen, CEO of Tyco, each received realized compensation of about $63m, mostly from equity profits.

Last year, chief executive pay roared back after two years of stagnation and decline. GNI's annual survey found pay hikes of between 27 and 40%.

Ruel said that while he expected that CEO pay would boom again this year, he also believed shareholders would make their voice heard.

Newly introduced "say on pay" rules give shareholders a chance to voice their concern at outsized pay deals. Although the votes are non-binding Citigroup has already said it will amend its pay deal with Pandit.

"I think shareholders are finding their voice," said Ruel.

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