But try to decipher some of their explanations, and you might not find much clarity. Executive pay packages are more complicated than ever, tied to an array of performance targets like "return on non-cash average assets" with components such as "performance share rights."
A decade ago, CEOs were commonly paid in stock, salary, bonuses and stock options, as well as perks. Pay packages have grown more complex as companies try to explain their pay packages in light of non-binding "say on pay" votes that give shareholders a voice.
"Often you get a laundry list of metrics, and it's hard for investors to tell," said
The Observer's annual analysis of executive pay showed median compensation rose 14 percent for the CEOs of
In general, executives are getting more of their compensation through salary and stock awards, and less through stock options. Here's how options work: If the stock goes up, the executive's options are worth more, while if the stock goes down, the options are often worthless.
Now boards are reducing options -- in part to respond to critics who think they reward executives arbitrarily for a rising stock price, rather than how well the executive is running the company.
That may be well-intentioned, but it's making pay packages "far more complicated," said
While the Occupy movement that cast a spotlight on inequality and CEO pay has faded, companies are still feeling the impact of shareholder votes on executive pay.
"For corporate governance, it's really been a game-changer. It's clear that CEOs and boards care about the results of these advisory votes," said Borrus. "This is a far cry from a few years ago. A lot of companies are doing outreach."
Such votes, required by the 2010 Dodd-Frank financial reform law, aren't binding. But failing them can embarrass a company, and boards have to explain the following year how they responded to investors' concerns. Though about 98 percent of companies pass their say-on-pay votes, even getting less than 90 percent shareholder support can spur changes.
Treading lightly around say-on-pay
Shareholder votes on CEO pay have not only prompted boards to more fully describe how they pay executives. Some are compensating their executives differently.
Piedmont's board decided not to give a retention award to CEO
--At Polypore, the
Although Polypore sent shareholders a seven-point rebuttal of ISS, the company saw shareholder support in its say-on-pay vote drop from 99 percent last year to 72 percent this year.
The board raised CEO
More complex pay packages
Some experts credit the say-on-pay votes with helping to drive increasing complexity in pay packages. Corporations' drive to show shareholders that pay is tied to performance has helped produce a proliferation of metrics for measuring that performance.
Different parts of an executive's pay are now tied to factors such as relative stock performance, pre-tax earnings and revenue. Other components can be time-restricted, tied to how long the executive stays at the company.
Some companies are now paying executives with performance stock options, a combination of stock options tied to performance targets that must be met before they vest.
"I've designed some really, what I would call kind of like 'high-performance automobiles,'" said Kelly. "Sometimes they work fine, but if people don't understand it, it's kind of like what was the point?"
--In 2003, Lowe's then-CEO received a base salary, a bonus, stock options and perks. The options were time-restricted, meaning they vested at set time intervals, and the bonus was tied to earnings.
In 2013, by comparison, Lowe's CEO
--In 2003, when
--SPX's Kearney was paid in salary, perks and time-restricted stock in 2004, the year he was named CEO. Last year, he was paid in salary, bonus, stock and perks. Two-thirds of Kearney's stock was tied to the company's three-year performance vs. the S&P 1500 Industrials index, and one-third accrues over time and is based on internal company metrics. His bonus was tied to both operating margin and free cash flow, weighted in different proportions.
"There is a degree of over-engineering in certain executive packages," he said. "It does actually create more confusion than benefit for shareholders."
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