CEO Pay Keeps Rising, But Not as Fast

No, the barbarians are not at the gates. In 2012, CEOs made about a third more than their counterparts did in 2002. But for those afraid that unbridled growth has returned there is some cause for relief: the rate of growth has moderated for the past three years.

The reasons for this vary: a still weakened economy compared to the pre-financial crisis era, public disapproval and investor activism have all played a role. But investor activism should not be confused with an outbreak of public consciousness. This has more to do with how the spoils are divided among an elite group of managers and investors than with any sort of corporate social responsibility. It is likely that with the economy improving, however fitfully, fund managers feel less dependent on management team operating capabilities and more willing to demand more of the lucre for their own investors, whose complaints about returns remain heightened despite the equity markets' recent performance.

This will continue to be a tug-of-war whose outcome will be dictated by relative shifts in power and opportunity. JL

Theo Francis and Joann Lublin report in the Wall Street Journal:

CEOs are still making plenty of money. But a wave of investor activism is helping keep a lid on growth in pay.

Compensation for corporate chiefs increased only slightly in 2013, and pay packages remained closely tied to a company's performance or the fate of its stock, according to a survey of early proxy filings by the Hay Group for The Wall Street Journal.

That was the third straight year of moderate growth. The survey looked at 50 public companies that brought in at least $8 billion in revenue. The median rise in pay was 4.1%—slightly faster growth than in 2012 but well below the median 25% shareholder return for the companies that were analyzed.

A number of corporate chiefs scored sizable paydays out of proportion to the gains booked by their shareholders. But others were docked when results didn't measure up, and that reined in overall gains for the group.

A quarter of the companies in the survey have faced shareholder campaigns in the last two years, some centering on pay practices, according to FactSet SharkWatch, which tracks shareholder activism. Such efforts have been given a boost by rules that since 2011 have required big companies to give shareholders a nonbinding vote on their executive-pay practices.

Though few of these "say on pay" votes fail, they give proxy advisers and shareholders an opening to highlight what they see as poor performance, and directors often revamp pay plans to avoid the heat.

"Boards and compensation committees are being much more sensitive to shareholders' perspective on executive pay," said Carol Bowie, head of Americas research at Institutional Shareholder Services Inc., a proxy-advisory firm.

Median pay for CEOs in the survey was $9.8 million, up from just shy of $9 million the previous year. Ms. Bowie said she expects growth in CEO pay to remain moderate, but doesn't think it will decline.

Darden Restaurants Inc.,  DRI in Your Value Your Change Short position which runs chains including Olive Garden and LongHorn Steakhouse, said it cut pay for Chief Executive Clarence Otis Jr. following sub-par results. His pay shrank by 24% to $5.9 million in the year ended May 26, as shareholder returns came in at 4% compared with 6% a year earlier.

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"While total shareholder return did increase during our most recent fiscal year, the company's performance did not meet our expectations and by design, executive compensation reflected that," Darden spokesman Rich Jeffers said.

Activist investors are pushing to break up the company. In December, Darden said it would spin off or sell its Red Lobster seafood chain, but investor Barington Capital Group LP called the move too modest. Another activist, Starboard Value LP, is seeking to halt the Red Lobster spinoff in favor of a more extensive breakup of the company.

Mr. Otis has said the company had been considering moves including a spinoff of Red Lobster for a while. Darden has said the Red Lobster separation doesn't require shareholder approval.

Fifteen of the CEOs in the survey had lower pay last year. Sometimes, that was because of one-off payments in the prior year, like the $20 million grant of restricted stock that Nike Inc.  NKE in Your Value Your Change Short position gave Chief Executive Mark Parker as a retention tool. It has no value unless he stays through mid-May 2017, spokeswoman Mary Remuzzi said.

The former Penn State University track star's pay fell 55% to $15.4 million, the biggest yearly drop in the survey. Shareholder return for the shoe and apparel maker was 16%, compared with 30% the year before.

Mr. Parker, who became CEO in 2006, has "delivered strong, sustained financial performance," Ms. Remuzzi said.

In other cases, even sizable pay increases didn't keep pace with shareholder returns. At Cisco Systems Inc.,Chief Executive John Chambers and investors reaped significant rewards for the year that ended July 31. His $19.6 million pay package was up 49% from the prior year. Shareholder return reached 65%, compared with 1.4% the year before. Cisco shares are down about 13% since July 31.

About 95% of Mr. Chambers's targeted total direct compensation reflected the company's performance, Cisco spokesman John Earnhardt said.

The Hay Group's analysis is based on proxies filed between May 1 and late January. Some of the companies' fiscal years ended last spring. The survey measures total direct compensation, which includes salary, all bonuses and the value of equity at the time it was granted. Shareholder return includes share-price changes and dividend payouts.

Overall, the median salary increase for the CEOs in the survey was 2.2%, meaning half saw a greater increase and half saw a smaller one. Bonuses rose by just 0.5%. The pay component showing the biggest gains—16%—was performance-based stock awards, which now account for almost a fourth of total compensation on average. Such awards tend to grow or shrink based on companies' financial results and stock price.

The Journal will report results of the full survey of compensation at 300 companies in May.

Over the longer term, CEO pay at big companies has risen, though not steadily. At the 30 companies currently in the Dow Jones Industrial Average, current CEOs made about a third more in 2012 than they or their counterparts were awarded a decade earlier.

Median pay for CEOs at current Dow companies was $15.6 million in 2012 compared with $11.8 million for their counterparts at the same companies in 2003, according to a separate Hay Group analysis.

Most of the increases came during the early years. Declines in pay were common between 2007 and 2009, and again during 2011 and 2012. Fourteen of the companies paid their CEOs less in 2012 than in 2003.

The decade was a successful one for shareholders. Average returns ranged between 5% in 2005 and 30% in 2003, with just one year of average losses, in 2008, at negative 25%.

Pay among the 50 companies surveyed for 2013 didn't always track performance. A few chief executives got higher compensation even as shareholder return lagged or fell.

At Bed Bath & Beyond Inc.,  BBBY in Your Value Your Change Short position compensation for Chief Executive Steven Temares rose 16% to $15.2 million in the fiscal year that ended March 2, 2013. By contrast, shareholder return was a negative 5%, compared with a positive 24% the prior year.

A Bed Bath & Beyond spokesman said the company and Mr. Temares declined to comment.

Pay for GameStop Corp.  GME in Your Value Your Change Short position Chief Executive J. Paul Raines nearly doubled to $11.3 million. By contrast, shareholder return came to 5.4% in the year ended Feb. 2, 2013, compared with 11% the prior year.

GameStop spokesman Joey Mooring said Mr. Raines's pay rise stemmed primarily from a long-term retention grant in February 2012 that pays out in full only if a measure of earnings growth reaches 20% by the end of January 2015. He may keep half or more of the grant if growth reaches at least 10%, according to company filings.

Mr. Raines's pay for the year amounted to about 70% of his target pay, the spokesman said. The CEO's bonus fell 32% while his salary rose 2%.

Compensation for Oracle Corp. ORCL in Your Value Your Change Short position Chief Executive Larry Ellison totaled nearly $77 million. Despite a 19% cut from the prior year, he topped the list of the survey's best paid and collected more than twice the $36.8 million total for runner-up Philippe Dauman of Viacom Inc.  VIAB in Your Value Your Change Short position

Both companies posted strong shareholder returns: 59% at Viacom, compared with 41% a year earlier, and 29% at Oracle, compared with a negative 22% a year earlier.

Mr. Ellison turned down a $1.2 million bonus for the past year because Oracle's growth missed expectations, the latest proxy said.

Some shareholders have campaigned against the compensation paid to Mr. Ellison, who founded the software giant and beneficially owns a quarter of its shares. Some complained that he continues to receive tens of millions of stock options every year even when Oracle's performance has been mixed.

Three members of Oracle's board compensation committee narrowly won re-election at the annual meeting in October with less than 60% of the vote. The company also lost its say-on-pay vote for a second year running.

Oracle and Mr. Ellison declined to comment. In its latest proxy, the company has defended Mr. Ellison's pay and its decision not to heed the 2012 say-on-pay result.

Viacom spokesman Jeremy Zweig confirmed Mr. Dauman's pay, and noted that, because nearly 90% of his pay package is tied to performance, the increase reflects strong company results.