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Stock, options fueling outsize gains for CEOs

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Stock, options fueling outsize gains for CEOs

Scores of CEOs rode Wall Street’s aging bull market for big windfalls in 2014, a year that’s shaping up as a record for executive compensation. Among the 100 biggest publicly held companies reporting so far, median CEO pay rose 5% to $14.3 million, and among nearly 25% of Standard & Poor’s 500 companies, median pay climbed 12% to $11.7 million, according to pay tracker Equilar and compensation consultant Towers Watson.the-percentage-of-americans-playing-the-stock-market-is-at-an-all-time-low

The pay numbers exclude the massive gains many executives from biotech to burrito makers reaped by cashing out previously awarded stock options and company shares. Among companies reporting so far, CEOs averaged options gains of over $9.6 million, up 72% over 2013, while average gains from exercised options climbed 34% to $10.7 million. Six years into a bull market, most company stock prices have recovered losses, while others continue to set new highs. The gains are compounded given that stock options were issued at low strike prices following the financial meltdown that pummeled the broad market. And at many companies, executives who are granted restricted shares simply must stick around long enough before they fully vest.

“How much does stock performance have to do with the CEO, and how much is it just market conditions lifting stocks?” asks longtime corporate governance expert Paul Hodgson. Clearly, given the growing divide between executive pay and that of rank-and-file workers, more and more corporate boards are reining in paychecks and tying performance metrics to stock and options awards. “If boards have slapped performance conditions on equity awards, it should make it more difficult to earn all of them,” says Hodgson. “But lots of big option grants were granted without any kind of thought to how much the market was going to recover. All of a sudden, you’ve got lots of CEOs sitting on a massive amount of wealth. In a lot of cases, it was a little too easy to earn.”


February 2018
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