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Thursday, Mar 28, 2024

Raises for Top Executives Despite Stock Declines

Times are sunny for public company chief executives in the San Fernando Valley area where top executives’ median pay increased by double digits. Topping the Business Journal’s annual list of highest paid executives again this year is Robert Iger, chief executive of Burbank entertainment and media colossus Walt Disney Co. The list begins on page 14. Iger saw his pay jump a whopping 81 percent from $36.3 million in 2017 to $65.6 million in 2018 — a result of his decision to remain with Disney past his planned retirement date and lead the company through its $71.3 billion acquisition of film and TV assets from 21st Century Fox. Of that $65.6 million, $35.4 million came from a bonus stock package. Including Iger, 16 of the Valley area’s 25 highest-paid chief executives received compensation boosts in 2018. According to the Business Journal’s list, median pay for company chief executives this year was $5.78 million. That’s a 17 percent increase from 2017, when median pay was $4.86 million. Stock price disconnect These pay hikes did not appear to follow stock trends, and in many cases contradicted them. Fifteen of the Valley area’s largest public companies saw drops in their stock price over the last year, including Tutor Perini Corp., Amgen Inc., ASGN Inc., California Resources Corp., The Cheesecake Factory Inc., Atara Biotherapeutics Inc. and Marcus & Millichap Inc. All seven of those companies’ chief executives saw their compensation increase in 2018 despite declines in share prices. According to Courtney Yu, director of research at board intelligence solutions firm Equilar, this trend may stem from directors offering a chief executive compensation that is competitive with his or her peers regardless of stock or even company performance. “You want to look at how your competitors in the industry are paying their executives in a similar role. (Pay) doesn’t necessarily depend on how profitable the company is,” Yu said. And top executive compensation overall is rising. Yu said executive pay at the country’s 500 largest companies increased from a median of $9.8 million in 2013 to $11.9 million in 2017 – an increase of 21 percent – and the trend is continuing. Tim Bartl, chief executive of the Center for Executive Compensation, said the disconnect between some companies’ executive pay and their shareholder returns may have to do with how much of the compensation package consists of long-term incentives, such as stock options and performance-based equity awards. These forms of compensation are paid out over a period of years based on future performance metrics including revenue, product development and customer acquisition and retention. The values of these metrics differ for each company. The equity numbers that appear on a company’s proxy report are compiled by the company accountant, who is largely estimating based on predictions and company strategy. So, these numbers often represent an estimated payout over multiple years and will “almost certainly” change based on the company’s true performance, Bartl said. Yu and Bartl both said performance-based payouts like these are on the rise. Pay ratio rule This is the second year that public companies were mandated by law to disclose in their proxies how their chief executive compensation compared to that of their median employee. The vast width of these gaps led some people to question whether executives should be paid so much money when employees on the ground struggle to make ends meet. Abigail Disney, granddaughter of Disney cofounder Roy Disney, made headlines in April when she called Iger’s compensation “insane,” and suggested his bonus would be better used to increase pay for lower-level employees. Iger earned 1,424 times that of the median Disney employee in 2018. Critics of the pay ratio rule argue that one-off bonuses and awards like Iger’s may inflate executives’ pay numbers, and that the inclusion of part-time and international employees drives median pay down, making the disparity between the top and the middle seem wider than it really is. Yu said the rule generally hasn’t impacted executive pay and doesn’t mean much when taken out of context. “A lot of it is company-dependent in terms of how it is structured, the types of employees they have and whether they’re international or domestic. It’s hard to use that ratio to compare it to other companies. Then the ultimate question becomes: how large of a ratio is too large? And that’s a subjective answer,” he said. The rule doesn’t require companies to do anything to adjust their pay ratio. Additions, subtractions A few chief executives made the list for the last time. Ronald Havner of Public Storage in Glendale and Robert Mehrabian of electronics manufacturer Teledyne Technologies Inc. in Thousand Oaks ended their tenure as chief executives at the close of 2018. Havner’s pay dropped 13 percent to $9.18 million, earning him the No. 5 spot, while Mehrabian’s dropped 10 percent to $7.38 million, earning him the No. 9 spot. The highest paid woman this year was Therese Tucker of BlackLine Inc. in Woodland Hills, whose earnings of $4.75 million landed her the No. 14 spot. The Business Journal’s list of highest paid non-CEO executives, was dominated by two of the Valley area’s biggest public companies. Disney had five executives make the list while Thousand Oaks biotech firm Amgen Inc. had six. That list begins on page 16.

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