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Stock options as executive compensation

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stock options as executive compensation

By PETER EAVIS APRIL 12, The Coca-Cola board, for example, lays out the formula that set the cash bonus for Muhtar Kent, its chief executive base salary x base salary factor x business performance factor. Kent got millions more in stock and options. What was all that worth? But putting aside whether those particular metrics for aligning pay with performance make sense or, rather, turning over that discussion to Gretchen Morgenson in her Fair Game columnthe elegant machine itself would seem to have a dark side. Some say, in fact, that it is the main engine of inequality in America today. The executive system of executive compensationwith its emphasis on performance, can theoretically constrain pay, but in practice it has not stopped companies from paying their top executives more and more. Pay Study, conducted for The New York Times. And the pay-for-performance metrics — particularly the idea of paying executives with stock to align their interests with shareholders — may even have amplified that trend. In some ways, the corporate meritocrat has become a new class of aristocrat. Economists have long known that high executive pay has contributed to the widening gap between the very rich and everyone else. But the role of executive compensation may be far larger than previously compensation. His numbers show that two-thirds of the increase in American income inequality over the last four decades can be attributed to a steep rise in wages among the highest earners in society. This, of course, means people like the C. This is not to say that boards always bow to C. But even if they made less money, chief executives were making extraordinary sums. Some received substantial raises: Mark Polzin, an Emerson spokesman, said that if the company is doing well, the structure of the package might cause a spike in Mr. The stocks of many companies posted robust performance inwhich could also help drive C. The pay of John T. Iger, was given a 7 percent pay cut. Zenia Mucha, a Disney spokeswoman, said in an email that 93 percent of Mr. Many large companies had not filed proxies by the April 4 survey deadline, including CBS, which filed last week. In June, results of an additional survey, including companies that file through the end of May, will appear in Sunday Business. Wall Street executives are still royally rewarded, but the C. Publicly traded private equity firms like Blackstone and Apollo Global Management were not included on the list because their revenue was too low, but their chief executives made a fortune last year. Of the executives on the Equilar list, only nine were women. The highest-paid, Phebe N. The two lowest-paid executives in the survey were Warren E. Buffett of Berkshire Hathaway and Larry Page of Google — with Mr. Both are founders and own stakes in their companies that are worth many billions. Executive pay has undergone many changes in recent years to make it more shareholder-friendly. As well as including a options of performance metrics, proxies have become more transparent and easier to understand. Kima managing director at Frederic W. Cooke, a compensation consulting firm. But to some skeptics, the new metrics have become an elaborate means to rationalize excessive pay. Stout places much blame on a crucial tax-code change made in the early s. The change, she said, helped prompt widespread use of pay-for-performance metrics. But as that options grew, pay kept climbing even when shareholder returns suffered. Stock-based compensation — options and shares combined — has risen as a percentage of overall pay in recent years. It was stock percent of the total inup from This is meant to be a good thing: Paying in stock can motivate executives to get the share price higher, which, of course, will benefit shareholders. View all New York Times newsletters. But as corporate boards place their faith in stock-based plans, they may decide to award even more executive, and when the market is rising, that can lead to enormous paydays when executives eventually cash out. The compensation apparatus, despite its checks and balances, ends up pushing pay ever higher. Piketty, the economist, said. Government policy makers can continue to leave the pay machine alone, in the belief that they should do little to influence the rules of business. But that stance may be stock to maintain if executive pay continues to be the main cause of income inequality, as Mr. Inthe top 10 percent of earners in the United States took in Bythat share had risen to Higher wages were behind two-thirds of that increase, according to his data. Piketty says that a ballooning of senior executive pay can explain a large proportion of that wage climb. One remedy might be to extend potentially attractive stock and options awards deeper into the ranks. That already happens at some technology executive, but is not as widespread in companies with lower-paid work forces. Winters of Wintergreen Advisersan investment firm. In response, Gloria K. They would just like to be paid more in cash. One is Charles Jordan, a longtime part-time worker for United Parcel Service at a depot in the Bronx, and a shop steward for the Teamsters union. Jordan, who favors more profit-sharing for workers. In coming months, a new corporate disclosure could add fuel to the debate over executive pay and inequality. Inas part of the Dodd-Frank Act, Congress passed a rule that requires public companies to disclose the ratio of the C. The main objective was to give shareholders a yardstick for comparing pay practices across companies, said Senator Robert Menendez, Democrat of New Jersey, who sponsored the provision. But he acknowledged that the ratio could serve another function. It could also serve another function: She proposes eliminating any tax deductibility for executive compensation that is more than times the minimum wage. Piketty favors a measure that has a bit more tang. He supports a substantially higher tax rate for top earners. And while he acknowledges that this is an imperfect tool, he rejects the argument that such a tax could dent the morale of executives and cause their companies to underperform. For another tax suggestion for reducing inequality, see the Economic View column by Robert J. The fact that Congress is highly unlikely to approve a higher tax rate anytime soon does not discourage Mr. He is Muhtar Kent, not Muhtor. A version of this article appears in print on April 13,on Page BU1 of the New York edition with the headline: Invasion of the Supersalaries. Order Reprints Today's Paper Subscribe. Tell us what you think. Please upgrade your stock. Sections Home Search Skip to content Skip to navigation View mobile version. The New York Times window. Business Day Executive Pay: Subscribe Now Log In 0 Settings. Close search Site Search Navigation Search NYTimes. Clear this text input. By PETER EAVIS APRIL 12, Continue reading the main story Share This Page Continue reading the main story. Delivered weekday compensation and afternoons. You must select a newsletter to subscribe to. You agree to receive occasional updates and special offers for The New York Times's products and services. Thank you compensation subscribing. An error has occurred. Please try again later. You are already subscribed to this email. The Pay at the Top APRIL 12, FAIR GAME Pay for Performance? 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