US CEOs break pay record as top 10 earners take home at least US$100m each

Pay gaps within companies widen as top two earners, led by Facebook’s Mark Zuckerberg, earn billion-dollar paychecks

PUBLISHED : Wednesday, 23 October, 2013, 12:03pm
UPDATED : Wednesday, 23 October, 2013, 12:03pm

For the first time ever, the 10 highest-paid chief executives in the US all received more than US$100m (HK$775 million) in compensation and two took home billion-dollar paychecks, according to a leading annual survey of executive pay.

Mark Zuckerberg, Facebook’s co-founder, was the US’s highest paid boss last year, according to GMI Ratings annual poll of executive compensation, released on Tuesday. Zuckerberg’s total compensation topped $2.27 billion - more than $6 million a day. His base salary was $503,205 but the vast majority of his enormous payday came from exercising 60 million Facebook share options when the company went public last year.

Richard Kinder, CEO and chairman of energy firm Kinder Morgan had a base salary of just $1 in 2012 and received no other bonuses. But he made $1.1 billion selling restricted stock. The payout follows a nearly $60 million profit from stock in 2011.

All told, the top 10 CEOs in this year’s poll took home over $4.7 billion between them and for the first time ever none earned less than $100 million. “I have never seen anything like that,”said Greg Ruel, GMI’s senior research consultant and author of the report. “Usually we have a few CEOs at the $100 million-plus level but never the entire top 10."

Overall GMI’s poll of pay and other forms of compensation for 2,259 US CEOs found an average rise of 8.47 per cent, less than the double-digit growth they have enjoyed for the past two years. But the average hides a more complex picture. This year’s top earners far outstripped those below them by making huge fortunes cashing in share options as the stock markets bounced back.

The report further illustrates the widening gap between CEO pay and that of the average worker. According to the US census bureau, median household income, adjusted for inflation, was $51,017 in 2012, broadly unchanged from 2011. Wages for the average household have fallen about 9 per cent from an inflation-adjusted peak of $56,080 in 1999. The census figures show a sharp recovery for those at the top of the wage scale as those at the bottom continue to see falls.

The average pay package of an S&P 500 CEO - the US’s top 500 companies - last year was $13.7 million. For those in charge of S&P small cap companies it was $3.5 million.

CEO pay is growing fastest for those at the top. The average rise in compensation for CEOs of the Russell 3,000 - which represents about 98% of all public US companies - was 8.47%. For the Russell 1,000 - measuring the top 1,000 companies - it was 15.47 per cent.

Base salaries, bonuses and other forms of compensation were largely unchanged in 2012. The survey found that the outsized pay increases experienced by some CEOs came from the exercise of large blocks of stock options and the vesting of outsized restricted stock grants.

“While stock options are intended to align the interests of senior executives with shareholders, the unintended consequence of these grants is often windfall profits that come from small share price increases,”GMI said in its report.

“With option grants numbering in the hundreds of thousands or even millions, CEOs at large companies in particular are able to profit by the millions for any positive gain over the strike price of their options. Furthermore, as Mark Zuckerberg showed when he sold $1bn worth of stock at Facebook’s IPO, these paper profits can quickly be converted into cash through stock sales."

Of the top 10 earners in 2012 all received the majority of their compensation for the year from share schemes. One executive, George Maffei, appeared twice in the top 10. Maffei received total compensation worth $254.8 million as CEO of Liberty Media Corporation and another $136.4 million as CEO of sister company Liberty Interactive. Maffei profited more than $250m on the exercise of 3.1m options at Liberty Media Corporation in 2012. As head of Liberty Interactive, Maffei exercised an additional 12.3 million options for a profit of more than $132 million.