The shareholder advocacy group As You Sow has released its seventh annual list of the most overpaid CEOs in the U.S., and many of the names are familiar from past lists put together by the group.
The annual report says that those companies on the list have performed significantly worse than S&P 500 companies that aren’t on it.
The economic disruption of the pandemic means that the upcoming proxy season, when most companies hold their annual meetings, could be a time of reckoning, said Rosanna Landis-Weaver, report author and executive compensation program manager at As You Sow.
Fund managers and pension funds have been showing increasing opposition to CEO pay packages, Landis-Weaver said, which is reflected in their votes. “More shareholders are taking another step in calling for accountability by voting against members of the compensation committees.
“Yet, as we detail in our report, executive compensation continued to increase, while performance at the companies that overpaid CEOs lagged.”
According to the report, entitled “The 100 Most Overpaid CEOs: Are Fund Managers Asleep at the Wheel?” the top 10 Most Overpaid CEOs were:
1. Sundar Pichai: Alphabet Inc.; compensation: $280,621,552
2. David M. Zaslav: Discovery Inc.; compensation: $45,843,912
3. Larry J. Merlo: CVS Health; compensation: $36,451,749
4. John C. Plant: Howmet Aerospace Inc.; compensation: $51,712,578
5. Robert Iger: Walt Disney Company; compensation: $47,517,762
6. Miguel Patricio: The Kraft Heinz Company; compensation: $43,297,480
7. Robert H. Swan: Intel Corporation; compensation: $66,935,100
8. Alan B. Miller: Universal Health Services; compensation: $24,473,240
9. Sheldon Adelson: Las Vegas Sands Corporation; compensation: $24,680,118
10. Lachlan Murdoch: Fox Corporation; compensation: $42,111,103
(These pay packages were evaluated before June 30, 2020. In some cases, CEOs presented here no longer hold that position.)
Between 2015 and 2020, the companies in the S&P 500 that have never been on As You Sow’s list beat the performance of those that are. The nonprofit group says that those not on the list had an annualized total shareholder return (which includes dividends plus stock appreciation) of 5.6%, significantly outperforming the annualized return of just 1.95% for the nine companies repeatedly appearing on the list.
The performance gap due to excessive compensation equates to approximately $223 billion in shareholder value lost, the report says.
Institutional Pushback
“Institutional opposition to overpaid CEOs is stronger than suggested by votes as reported to the SEC,” Landis-Weaver said. “This year we used, with the assistance of Proxy Insight and Insightia, an analysis that excluded votes from shares controlled by management and others and instead measured only votes controlled by institutional fund managers. Using these votes, the number of S&P 500 companies where the CEO pay package failed to get at least 50% of the votes more than doubled, going from six companies to 15 companies.”
Firms that overpaid CEOs missed out on massive stock market gains in the last few years, lagging by 6% in 2016 and 14% in 2017, said As You Sow. In bad market years like 2015, firms that overpaid their chief executives destroyed more value than those that didn’t.
R. Paul Herman is the CEO of HIP Investor Inc., which did the performance analysis. He said in a statement that shareholders could have avoided lagging returns by excluding companies that keep making the list for excessive CEO pay.
The nine S&P 500 companies that show up on the list most often, including Comcast, Discovery and Disney, “gain only one-third (35%) of the annualized total shareholder return of those S&P 500 firms never on the list,” he said.
“Those companies could have redirected that compensation to fairer pay for workers, funding R&D, or dividends for shareholders,” Herman said.
Robert Reich, the former U.S. secretary of labor, said in a statement that the battle against excessive pay should “include the wider usage of a voting process with the largest financial managers, such as BlackRock and Vanguard, more firmly exercising their shareholder power to rein in excesses. Corporations with overpaid CEOs should also take steps to support increasing the minimum wage.”
“In advance of the upcoming proxy season,” said Landis-Weaver, “investors are focused on whether Covid-based adjustments are appropriate to CEO pay packages. Investors and advisory firms have made it clear that they will evaluate pay packages in the context of how shareholders and employees have fared during the pandemic.”