As CEO pay grows even bigger, so does its complexity

May 25, 2022, 5:03 PM | Updated: May 26, 2022, 5:49 am
FILE - Apple CEO Tim Cook attends the world premiere of Apple's "The Morning Show" in New York on O...

FILE - Apple CEO Tim Cook attends the world premiere of Apple's "The Morning Show" in New York on Oct. 28, 2019. At $98.7 million, Cook was the fourth highest-paid CEO for 2021, as calculated by The Associated Press and Equilar, an executive data firm. (Photo by Evan Agostini/Invision/AP, File)

(Photo by Evan Agostini/Invision/AP, File)

NEW YORK (AP) — CEO pay is a tricky thing to explain.

Within the eight- and even nine-figure sums trumpeted for CEOs each year, just a small portion is actual cash. Last year, only a little more than a quarter of compensation for the typical CEO at an S&P 500 company came from cash salary or bonus. At the very top of the rankings, cash can make up 1% or less of total compensation.

Instead, the majority of a CEO’s pay tends to come from grants of stock and grants of stock options, which give the CEO the opportunity to buy shares of stock in the future at a certain price. That’s often by design, because shareholder advocates have pushed for CEO pay to be more closely aligned with their own returns.

Because of that, exactly how much a CEO is able to cash in will ultimately depend in part on the performance of the company — and the CEO.

“There’s been such progress made in the past decade in getting pay and performance decisions correct,” said Melissa Burek, a partner at Compensation Advisory Partners, a consulting firm that helps boards formulate executive pay. “I would say we have more acute awareness of these issues.”

For grants of stocks and options, the numbers listed in companies’ annual proxy statements reflect an estimate of how much they’re worth.

Consider Apple’s CEO, Tim Cook, who ranks No. 4 in the AP’s pay survey this year with a package valued at $98.7 million. Just $3 million of that is salary.

The vast majority came from a grant of restricted stock, valued at $82.3 million. It’s the first such grant Apple’s board has given Cook since his promotion to CEO in 2011, but he won’t be able to buy anything with it anytime soon.

The stock grant is made up of two batches. One will become available to Cook in tranches over three years, beginning next April. The other will become available to Cook only if Apple’s stock beats certain performance targets in coming years.

Since Cook started as CEO, Apple’s stock has returned more than 1,100% and the company is the most valuable on Wall Street.

Cook also received a bonus of $12 million because Apple’s 33% growth in net sales and 64% growth in operating income last fiscal year blew past targets. Apple’s board had the option to adjust the payout up or down, depending on the company’s performance on environmental, social and governance criteria, known as ESG. But because Cook’s payouts were maxed out after topping performance targets, the board did not do that.

This was the first year Apple’s board considered such ESG issues in setting Cook’s pay, and it joins a small but growing group. They’re the latest additions to the often complicated formulas companies have created to set their CEOs’ pay. Other considerations at companies include everything from customer satisfaction to worker safety.

The people ultimately in charge of setting CEO pay are the ones on the company’s board of directors. Those directors are supposed to represent all of a company’s shareholders, who get some voice in the process.

At companies’ annual meetings with shareholders, investors regularly get the chance to vote in “Say On Pay” tallies, though the results are only advisory and don’t compel boards to make any changes. Such votes have routinely received more than 90% of support, but Wall Street’s biggest investors have been paying more attention to the topic.

BlackRock, for example, is often one of the biggest shareholders at any company because of the size of its index funds. It says it will vote no on “Say On Pay” and against nominees for a board’s compensation committee when it sees a company has failed to align pay with performance.

Such measures have not put the brakes on CEO compensation, which continues to rise as many boards look to pay their CEO similar to or better than what rivals are paying their leaders. The typical package for an S&P 500 CEO jumped 17.1% last year to a median of $14.5 million as stock prices and corporate earnings surged.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

A house lays in the mud after it was washed away by Hurricane Fiona at Villa Esperanza in Salinas, ...
Associated Press

Puerto Ricans await aid, fret about post-hurricane recovery

TOA BAJA, Puerto Rico (AP) — City worker Carmen Medina walked purposefully through the working-class community of Tranquility Village under a brutal sun, with clipboard, survey forms and pen in hand — part of a small army of officials trying to gauge the scope of disaster caused by Hurricane Fiona’s strike on Puerto Rico. She […]
1 day ago
Models wear creations as part of the Benetton women's Spring Summer 2023 collection presented in Mi...
Associated Press

Benetton, Ferrari close Milan Fashion Week with bold moves

MILAN (AP) — Milan Fashion Week closed Sunday after five days of mostly womenswear previews that celebrated diversity and renewal, with more designers of color represented than ever and a host of new talent making their debuts at major fashion houses. The Italian fashion council was also putting the spotlight on sustainability with the return […]
1 day ago
This image released by Warner Bros. Entertainment shows Harry Styles, left, and Florence Pugh in a ...
Associated Press

‘Don’t Worry Darling’ shrugs off drama, opening with $19.2M

After off-screen drama threatened to consume Olivia Wilde’s “Don’t Worry Darling,” the Warner Bros. release opened No. 1 at the box office, debuting with $19.2 million in ticket sales, according to studio estimates Sunday. Starring Florence Pugh and Harry Styles, “Don’t Worry Darling” was engulfed by a storm of controversies that revolved around everything from […]
1 day ago
Associated Press

‘Eco-warrior” and Earth First! co-founder Dave Foreman dies

ALBUQUERQUE, N.M. (AP) — Dave Foreman, a self-proclaimed eco-warrior who was a prominent member of the radical environmentalism movement and a co-founder of Earth First!, has died. He was 74. The New Mexico-based Rewilding Institute, which Foreman founded as a think tank to develop long-term land conservation plans, said on its website that he died […]
1 day ago
Associated Press

Heavy crane topples onto downtown Oklahoma City building

OKLAHOMA CITY (AP) — A 60-ton crane being used to remove a video display board from a downtown Oklahoma City building toppled onto the building that houses several news offices, officials said. The crane’s operator suffered minor injuries in the Saturday afternoon accident. Two other men working in the bucket of a small crane and […]
1 day ago
Associated Press

San Diego County to pay $1.35M over 2018 in-custody death

SAN DIEGO (AP) — San Diego County and other defendants have agreed to pay $1.35 million to settle a lawsuit filed by the mother of a Mexican citizen who died after sheriff’s deputies arrested him in 2018, officials said. The lawsuit filed by Dolores Rosales, of Tijuana, alleged deputies used excessive force when they took […]
1 day ago

Sponsored Articles

Anacortes Christmas Tree...

Come one, come all! Food, Drink, and Coastal Christmas – Anacortes has it all!

Come celebrate Anacortes’ 11th annual Bier on the Pier! Bier on the Pier takes place on October 7th and 8th and features local ciders, food trucks and live music - not to mention the beautiful views of the Guemes Channel and backdrop of downtown Anacortes.
Swedish Cyberknife Treatment...

The revolutionary treatment of Swedish CyberKnife provides better quality of life for majority of patients

There are a wide variety of treatments options available for men with prostate cancer. One of the most technologically advanced treatment options in the Pacific Northwest is Stereotactic Body Radiation Therapy using the CyberKnife platform at Swedish Medical Center.
Work at Zum Services...

Seattle Public Schools announces three-year contract with Zum

Seattle Public Schools just announced a three-year contract with a brand-new company to the Pacific Northwest to assist with their student transportation: Zum.
Swedish Cyberknife 900x506...

June is Men’s Health Month: Here’s Why It’s Important To Speak About Your Health

According to the Centers for Disease Control and Prevention, men in the United States, on average, die five years earlier than women.
...

Anacortes – A Must Visit Summertime Destination

While Anacortes is certainly on the way to the San Juan Islands (SJI), it is not just a destination to get to the ferry… Anacortes is a destination in and of itself!
...

Ready for your 2022 Alaskan Adventure with Celebrity Cruises?

Celebrity Cruises SPONSORED — A round-trip Alaska cruise from Seattle is an amazing treat for you and a loved one. Not only are you able to see and explore some of the most incredible and visually appealing natural sights on the planet, but you’re also able to relax and re-energize while aboard a luxury cruise […]
As CEO pay grows even bigger, so does its complexity