US executive pay bucked falling stock market in 2022

Moderna, Simon Property Group and Marriott are among at least 107 S&P 500 companies that gave their chief executives pay increases last year even as their shares declined, according to regulatory disclosures.

More than a third of S&P 500 companies awarded executives more pay for 2022 than in 2021 even though they had negative total shareholder returns last year, according to a preliminary analysis of regulatory findings conducted by ISS Corporate Solutions (ICS) for the Financial Times.

About one in four companies with negative returns cut their chief executive’s pay, according to ICS, which analysed 289 companies that had filed annual proxy statements by April 14.

The analysis shows that many executives continued to enjoy big pay awards despite a 19 per cent drop for the benchmark S&P 500 index last year, the biggest fall since 2008. The median CEO’s pay decreased by less than 1 per cent to $14.3mn for the companies that have disclosed 2022 pay, ICS’s analysis showed.

Institutional investors have vented their frustration as US executive pay has outpaced that of most employees in recent years. Shareholder support for CEO pay declined last year, and the head of Norway’s $1.2tn oil fund attacked “corporate greed” and excessive rewards for “mediocre performance”.

After pay declined at many companies during the worst period of the Covid-19 pandemic, “total CEO compensation has fully bounced back,” said Matteo Tonello, a managing director at The Conference Board.

He added: “[Last year], there was a quite remarkable increase in failed say-on-pay votes at a significant number of large and prominent companies.

“We will continue to see more of that in those situations with misalignment” between pay and performance this year, he predicted.

Simon Properties, the largest shopping centre owner in the US, awarded CEO David Simon $35.7mn for 2022, up from $10.5mn in 2021. Simon, son of the company’s co-founder, was given a $28mn cash bonus. The company’s total shareholder return dropped 22 per cent last year.

Vaccine-maker Moderna increased pay for CEO Stéphane Bancel by 6.7 per cent to $19.4mn last year as its total shareholder return, which includes dividends, dropped 29 per cent. Since 2020, however, its shareholder returns have significantly outperformed those of its peers in the Nasdaq biotechnology index.

The pay of Anthony Capuano, chief executive of hotel chain Marriott, increased 1.6 per cent to $18.7mn last year as its total shareholder returns dropped 9.3 per cent.

Company representatives pointed to this year’s new Securities and Exchange Commission “pay versus performance” disclosure rules, which are designed to give investors a clearer glimpse of the relationship between chief’s pay and total shareholder return. These disclosures were mandated by the 2010 Dodd-Frank Wall Street reform law, but were only adopted by the SEC last year. The disclosures include “compensation actually paid”, a metric derived from unvested stock.

Capuano’s “compensation actually paid” was down 27 per cent in 2022 owing to a drop in the company’s stock price, Marriott said.

Comparing traditional pay disclosures to total shareholder return in a single year “does not paint a full picture”, she said.

Moderna declined to comment and Simon Properties did not respond to requests for comment.

The top performing S&P 500 companies in 2022 were oil and gas businesses. Total shareholder returns at Occidental Petroleum, Hess, Marathon, and Schlumberger soared more than 80 per cent in 2022. But while Occidental CEO Vicki Hollub’s pay increased by 35 per cent as the company’s shares doubled in 2022, CEO pay at Marathon was flat for the year and pay at Schlumberger dipped 6.4 per cent.

Exxon last week said chief executive Darren Woods’s 2022 pay increased 52 per cent to $36mn as oil companies globally enjoyed record profits last year.

Similar to the SEC’s “pay ratio” disclosure, the new SEC pay-versus-performance disclosures “will result in public scrutiny and public attention if [corporate] pay-versus-performance looks lopsided,” said George Georgiev, a professor at Emory University’s law school.

In its inaugural pay-versus-performance disclosure, manufacturer Boeing said its total shareholder return lagged behind its peer group for three straight years. Pay to CEO David Calhoun increased 6.6 per cent in 2022 to $22.5mn for last year, the company said.

Proxy adviser Institutional Shareholder Services has recommended Boeing investors vote against Calhoun’s pay at the company’s April 18 meeting.

Boeing declined to comment.

The SEC’s pay-versus-performance disclosures will help investors identify the relationship between CEO pay and performance, said Michael Kesner, a partner at consultancy Pay Governance.

“What shareholders expect is you do well when I do well and you are going to get hammered when I get hammered,” he said.