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The New Pay Gap: What Firms Report Paying CEOs Versus What They Take Home


The New Pay Gap: What Firms Report Paying CEOs Versus What They Take Home

Less familiar: Many of those CEOs wind up receiving much more, often well after the compensation is initially disclosed.

The $190 million that


ORCL -3.03%

reported paying co-CEO

Mark Hurd

over three years was valued at $535 million by the end of that period. At consulting firm


IT -2.38%

$33.6 million of pay for

Eugene Hall

swelled to $65.7 million. The $53 million


MCD -2.20%

reported paying

Stephen Easterbrook

grew to about $85 million.

These gains are driven in part by a robust stock market, which has driven up the value of executive equity awards, but also by intricate pay structures that can multiply the number of shares and options those awards ultimately provide.

The Wall Street Journal compared what S&P 500 companies reported paying their CEOs over three years with a measure of what that pay was worth at the end of the period, called realizable pay, using data from ISS Analytics, the data intelligence arm of proxy adviser Institutional Shareholder Services. (For more information, see the methodology note at the end of this article.)

On average, the value of the pay at the end of the period was 16% higher than originally disclosed. Pay rose at three out of five companies. And at a third of companies, pay rose by more than 25%.

“Realizable pay allows us to see how pay scales up with performance,” said Simiso Nzima, investment director for the California Public Employees’ Retirement System, or Calpers, which has begun using its own five-year measure of realizable pay in evaluating company pay programs.

Gains and Losses

Stock-market movements and other factors can drive the value of CEO pay up significantly over time, or—less frequently—reduce its value.

Reported CEO pay compared to realizable pay for select companies

$534.6 million


Proportion of companies where the value of the CEO’s pay…

Reported CEO pay compared to realizable pay for select companies

$534.6 million


Proportion of companies where the value of the CEO’s pay…

Reported CEO pay compared to realizable pay for select companies

$534.6 million


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Proportion of companies where the value of the CEO’s pay…

Proportion of companies where the value of the CEO’s pay…

Reported CEO pay compared to realizable pay for select companies

Equity of all kinds made up about two-thirds of disclosed CEO pay last year, and these stock and option awards drove the gap between disclosed pay and so-called realizable pay—but not just because share values change over time.

Share-price gains accounted for about three-quarters of the overall difference. At McDonald’s, $26.6 million of the increase in Mr. Easterbrook’s pay came from market returns, while $5.2 million came from other factors. A McDonald’s spokeswoman said the company has gained $71 billion in market value during Mr. Easterbrook’s tenure.

For many companies, a key reason pay rises or falls is an increasingly common variety of stock and option awards called performance equity.

These awards are designed to give executives more shares—or sometimes more stock options—if the company meets performance targets set by the board. These thresholds can be based on measures like profitability or cash flow, or meeting any of a variety of operational goals, sometimes spread over several years.

Notching better performance against these metrics means CEOs receive additional options or more shares of stock, raising the value of the award beyond any share-price change. Poor performance against the metrics means receiving fewer shares or options.

Performance shares made up at least part of long-term pay plans at 83% of S&P 500 companies last year, up from about half in 2008, pay consulting firm Farient Advisors LLC found.

“The biggest trend in executive compensation for the last 10 years has been the growth of performance shares,” said

Marc Hodak,

a partner at Farient Advisors.

But CEO compensation figures can omit significant amounts of pay. Most companies haven’t yet determined how many shares their CEOs will receive under performance-equity awards by the time they must disclose annual pay figures.

To put a value on the award in the proxy disclosure, companies make an assumption about how well the executives will meet performance targets, often assuming they will meet midrange targets without triggering more stringent “stretch” goals that would yield additional shares. (Companies usually disclose the maximum possible award value, at award-date share prices, in a footnote.)

The result: Executives can ultimately receive many more shares and significantly greater value than initially disclosed, even before considering share-price movements.

Vincent Forlenza

made about $15 million in 2018, as reported in December by the company he runs,

Becton, Dickinson

& Co., which makes catheters, infusion pumps, syringes and similar medical equipment.

That total assumed performance-equity awards would be paid out at target levels, or $4.49 million, based on Becton Dickinson’s share price when the awards were made in late November, a footnote in the company’s proxy says.

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However, if the company were to exceed the relevant performance measures—tied to return on invested capital and total shareholder return relative to other health-care companies—by a wide enough margin, Mr. Forlenza would get twice as many shares, adding another $4.49 million to his total, based on late-November share prices.

A Becton Dickinson spokeswoman said performance equity is meant to reward long-term financial results and noted that shareholders have overwhelmingly approved the company’s pay program in each of the past three years. “The board believes that our compensation program effectively aligns the interests of our executives with those of our shareholders and the long-term goals of [Becton Dickinson],” she said.

Sometimes stock-price appreciation and performance targets work together to boost a CEO’s pay.

Gartner reported paying Mr. Hall $33.6 million from 2016 through 2018, about $18 million of it in performance shares valued at target levels. By the end of that period, however, Mr. Hall’s realizable pay for the period was valued at nearly double the reported figure, or $65.7 million, ISS calculated.

Stock returns contributed most of that increase, or $19.5 million. The rest, about $12.6 million, came from above-target performance-equity awards.

A Gartner spokesman declined to comment.

Strong stock returns can compensate for missed performance targets. Investors are less likely to worry when stock-market gains make up for missed performance targets, corporate governance experts say. More concerning, they say, is when CEOs get more shares that make up for poor stock-market performance.

That does happen. At Oracle, market activity reduced the value of Mr. Hurd’s pay by $39.9 million. Performance-equity factors helped increase it. At the end of the three years, Mr. Hurd’s pay was valued at $345 million more than initially reported.

Oracle didn’t respond to requests for comment.


The Journal compared three years of annual total pay for S&P 500 CEOs, as disclosed in company annual proxy statements, to a measure of the value of those same years’ pay at the end of the period, using data provided by Institutional Shareholder Services. The measure of value at the end of the period, called realizable pay, includes cash salary, bonuses and incentives as paid; the value realized from stock options at exercise; and the value of restricted stock when it vests, or becomes fully the executive’s. Unexercised options and unvested restricted stock are valued using the company’s share price at the end of the period, unless forfeited or unearnable.

Write to Theo Francis at

Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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