Compensation Issues

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How much did the top-performing and worst-performing CEOs get paid last year?

As investors put increasing pressure on companies to tie a greater percentage of their executives' compensation to measurable results, many CEOs' pay is now tied to performance.

The Wall Street Journal's annual pay survey, conducted by the Hay Group, analyzed the compensation for 300 CEOs and the returns each delivered to their stakeholders in 2014. The survey found that, for the most part, top executives' compensation matches up with performance. The 10 CEOs who garnered the best shareholder returns were paid more than they were in 2013, and eight out of the 10 worst-performing CEOs got pay cuts. Here are seven key findings from the survey.

  • Compensation for CEOs with the highest investor-return rankings generally rose, according to the report. John Standley, CEO of Rite Aid, delivered the highest shareholder return of the 300 CEOs included in the survey, at 292 percent. His pay increased by 6.5 percent to $8.3 million.
  • Gary Kelly, CEO of Southwest Airlines, delivered a 126 percent shareholder return in 2014. He was compensated $5 million, 23.9 percent higher than in 2013.
  • The highest-paid CEO included in the survey was Michael Fries of Liberty Global, with compensation of about $112.2 million in 2014, up 129.4 percent from 2013. Shareholders saw a return on investment of 13.3 percent.
  • Brent Saunders, CEO of global pharmaceutical company Allergan, formerly Actavis, was the only one out of the 10 highest paid CEOs ranked among the top 10 percent by investor performance in the survey.
  • At the same time, the survey found two of the 10 highest-paid CEOs — Philippe Dauman, CEO of Viacom, and Jeff Immelt, CEO of General Electric — received pay raises despite the fact that the value of their shareholders' investments in their companies dropped.
  • Mr. Dauman's compensation increased by 19 percent to $44.3 million in 2014, making him the seventh-highest paid CEO on the list, though his shareholder return came in at negative 6.6 percent, ranking Viacom at 263, according to the survey.
  • Although John Hammergren, CEO of medical products company McKesson, delivered a return of 64.6 percent to investors, his pay plummeted by 49.9 percent to $25.9 million. According to the report, Mr. Hammergren's pay cut largely reflects a drop in the value of his pension. Additionally, following complaints from investors, Mr. Hammergren agreed last year to lower his then-$159 million pension and benefit plan by $45 million, and McKesson bolstered its incentive compensation program for other top executives.

Where some CEOs' pay doesn't match up with their performance indicates some boards' notion of success does not always align with what benefits investors. Additionally, long-term sources of pay such as pensions and multiyear stock grants can also increase compensation, even if annual performance is sub-par, according to the report.

CEO compensation and investor returns can differ for several other reasons. For example, performance metrics could be tied to company-specific goals, or share-price targets could be benchmarked against like-companies in the industry, which could reveal superior leadership through comparison.

As a whole, total compensation for the 300 CEOs in The Wall Street Journal's survey rose by a median of 13.5 percent to about $13.6 million, and roughly two-thirds of this was linked to performance. These figures tower over the 2.2 percent average rise in wages and salaries for U.S. private sector employees from 2013 to 2014, according the Labor Department.

Note: The survey covers CEOs at 300 large companies with at least $9.1 billion in revenue and a proxy statement filed by April 30. Discovery Communications — with 2014 revenue of $6.3 billion — was left out of the survey's parameters because much of CEO David Zaslav's $156 million compensation was for signing a new employment agreement.

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