Executive compensation up 6 percent in 2011
The typical American worker would have to put in 244 years on the job to earn what chief executives of S&P 500 companies averaged in total compensation in 2011, according to an annual survey by The Associated Press.
Top executives of public companies listed on the Standard & Poor”™s 500 stock index earned an average of $9.6 million last year, up 6 percent from 2010, according to the AP survey, which used data from executive pay research firm Equilar.
In comparison, the median salary for all U.S. workers was about $39,300 in 2011, up 1 percent from 2010.
The heads of at least five publicly traded companies based in Westchester took home more than $10 million in total compensation in 2011, with Rye-based GAMCO Investors Inc. founder, chairman and CEO Mario J. Gabelli topping the list at $61.7 million, according to the company”™s most recent definitive proxy statement filed with the SEC.
Joining Gabelli atop the list of local earners were Samuel J. Palmisano, who in January was named executive chairman of IBM Corp. after serving as president and CEO of the Armonk technology giant since 2002, Indra K. Nooyi, chairman and CEO of PepsiCo Inc. in Purchase, Martin E. Franklin, executive chairman of Jarden Corp. in Rye and Leonard S. Schleifer, president and CEO of Regeneron Pharmaceuticals Inc. in Tarrytown.
The total compensation packages for the latter four in 2011 were $31.8 million, $17.1 million, $13.3 million and $10.6 million, respectively, according to proxy statements filed with the SEC.
Both on Wall Street and among mid-sized and large private companies based in Westchester, executive compensation in 2011 was largely tied to company performance, experts said.
Alan G. Badey, managing partner of Citrin Cooperman”™s White Plains office, said for years companies have structured their respective executive”™s pay package around specific performance measures.
“Most of the compensation plans are set up in a way that incentivizes the profits at the end of the day,” Badey said. “That could be from a dollar standpoint, or they could also be receiving compensation in the form of rights, in terms of ownership of the company.”
The AP survey also noted that companies are increasingly emphasizing stock awards over cash bonuses for their top executives, which in turn are tied directly to a particular company”™s performance.
Ted Miller, founder and president of DataKey Consulting L.L.C. in Mount Kisco, which produces a quarterly business confidence index in collaboration with hundreds of Westchester businesses, said area companies have favored bonuses over salary raises as a means of keeping costs variable.
“For almost every company, the number one costs are salary and compensation to employees, so they”™d much prefer ”“ if performance objectives are hit ”“ to go out and pay bonuses because that takes some of the risk away,” Miller said.
In addition to eliminating some of the risks, bonuses put the onus back on employees and executives to maximize productivity, Miller said. “It also is an incentive, and so now you”™ve got more and more people on your team who are driven by the business”™ success.”
Any company ”“ from Simon Property, which last year paid CEO David Simon $137 million, to Westchester small businesses ”“ must pay competitive wages to their executives to keep profits strong, Badey said.
“I have found that the companies who have effective management … ultimately are continuing to grow,” he said. “There are certain industries that are still getting crushed … (but) ultimately companies make money because they”™re managed well, and in order to get the right managers, you need to compensate them appropriately.”
John Alan James, executive director of the Center for Global Governance, Reporting and Regulation at Pace University”™s Lubin School of Business, echoed Badey, saying, “They”™ll always tell you if you want the best people, you”™ve got to pay what the market demands.”
The $9.6 million average total compensation figure reported by the AP represents the highest mark since it began tracking executive compensation in 2006.
However, when viewed in relation to the S&P 500 companies”™ profits in 2011, James called the 6 percent increase in the average total compensation package “modest.”
Profits at companies listed in the S&P 500 rose by an average of 16 percent in 2011, despite a shaky U.S. economy.
“I don”™t find it (the 6 percent increase) excessive at all,” James said. “It goes back to, what has the return on investment been and what has the return to shareholders equity been ”“ and I hope it has been a lot more than 6 percent.”