The 100 Most Overpaid CEOs 2018: Are Fund Managers Asleep at the Wheel?

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We launched the 2018 edition of The 100 Most Overpaid CEOs: Are Fund Managers Asleep at the Wheel? on March 1, 2018 with a webinar, which may be viewed here. The slides for our webinar can be downloaded here.

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INTRODUCTION

For the past four years As You Sow has issued this report highlighting the 100 most overpaid CEOs among the 500 companies in the S&P500 index. The report’s prime focus is shareholder votes on these pay packages, particularly the votes of large financial managers, mutual funds, and pension funds.

CEO compensation as it is currently structured in the United States does not provoke positive economic outcomes like sustainable company growth. Instead it incentivizes focus on numeric goals that can be easily financially engineered. Many of the metrics that drive CEO pay are short-term and provoke decisions with negative long-term impact; underinvestment in research and development and choices that have long-term negative environmental impact. High CEO pay over-emphasizes the impact of a single individual at a company, rather than rewarding the work of the many company employees. It raises economic inequality to such a level that it becomes increasingly incompatible with a well-functioning economic system.

Manfred F. R. Kets de Vriescalls, of INSEAD -- a graduate business school with campuses in Europe, Asia and the Middle East -- wrote recently that inflated CEO pay is “a sign of impending rot.”

Overpaying the CEO of a company can lead many people to make the false assumption that such compensation is "earned" and justified. It is not. Indeed, the average corporation in its annual proxy statement devotes about ten thousand words to justify those large payments to their CEOs, often rationalizing those large payments by calling them "performance" based and market rate (citing as peers only overpaid CEOs).

Shareholder votes on CEO pay packages provide a critical and underutilized tool for restraining the worst excesses.

This report seeks to identify which financial managers are exercising their fiduciary responsibility and voting against these excessive payments. And conversely, which ones are simply rubber stamping their approval to ever-increasing CEO pay in company after company.

Methodology

In prior years we employed a methodology using two rankings to identify the 100 most overpaid CEOs. For one ranking we used a regression based on total shareholder return (TSR) conducted by HIP Investor. For the other ranking we combined an aggregated score of 30 problematic pay practices ("red flags"). These two rankings were weighted equally to create a final ranking. Doing this we found a high correlation between the companies on our final list and those that received the highest level of opposition from shareholders voting on these pay packages at the annual meetings.   

This year we focused the report on large asset owner voting and created a simpler methodology that still used two rankings. The first is the same HIP Investor regression we’ve used every year that highlights excess pay based on TSR. The second ranking used the lowest proxy votes for pay packages at S&P 500 companies as a stand-in for the more detailed red flag methodology. These two rankings were weighted 2:1 with the regression analysis being the majority. We also excluded those CEOs whose total disclosed compensation (TDC) was in the lowest third of all S&P 500 CEO pay packages. The full list of the 100 most overpaid CEOs using this methodology is found in Appendix A. The regression analysis of predicted and excess pay performed by HIP Investor is found in Appendix C and its methodology is more fully explained there.

There are three companies – Comcast, ExxonMobil, and Oracle – that have now been on the list every year. An additional five are also repeats from last year: Chesapeake Energy, Citrix, Discovery Communications, Regeneron Pharmaceuticals, and Wynn Resorts.

 

Rank Company Name CEO at Time of Proxy Vote Total Disclosed Compensation
1ORACLESafra A. Catz / Mark Hurd$82,065,708
2ACTIVISION BLIZZARDRobert A. Kotick$33,065,560
3JOHNSON CONTROLS INTERNATIONAL PLCAlex Molinaroli$46,396,770
4CHARTER COMMS.CL.AThomas M. Rutledge$98,515,727
5ALPHABET 'A'Sundar Pichai$199,718,200
6WYNN RESORTSStephen Wynn$28,156,985
7INTERNATIONAL BUSINESS MACHINESVirginia Rometty$32,695,699
8REGENERON PHARMS.Leonard S. Schleifer$28,337,520
9DISCOVERY COMMS.'A'David M. Zaslav$37,192,354
10SL GREEN REALTYMarc Holliday$17,326,371
11TWENTY-FIRST CENTURY FOX CL.AJames Murdoch$26,379,673

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