The pay packages for the heads of Louisiana’s publicly traded companies rose, for the most part, in 2013, not surprising in a year when stock prices, locally and nationally, increased by 30 percent or more.
Aaron Boyd, director of governance research for executive compensation consultant Equilar Inc., said the Louisiana CEO numbers are pretty consistent with what’s taking place nationally.
“I think when you have a year where the majority of companies are doing well and having very high returns, you’re going to see … pay go up,” Boyd said.
Pay packages are designed to reward executives when things go well. The assumption is when things don’t go well, executives’ pay packages will reflect that.
The Louisiana companies’ shareholder return averaged 32 percent in 2013, according to the Burkenroad Reports at the Tulane University Freeman School of Business.
However, Linus Wilson, associate professor of finance at the University of Louisiana at Lafayette, said he could find little correlation between the stock returns and compensation for Louisiana CEOs.
Eleanor Bloxham, CEO of The Value Alliance and Corporate Governance Alliance, said it’s important to define performance.
The stock market fluctuates so much that it’s difficult to make year-to-year comparisons, she said. If the stock market or an entire sector picks up, it doesn’t necessarily mean that a particular CEO did a better job than another.
Publicly traded companies typically hire consultants and compare their CEO pay to that at similar-sized firms.
Boyd said there were few widespread differences in pay among Louisiana’s public companies, and the firms appear to have structured pay packages in much the same way that public companies did nationally.
The biggest variation in CEO compensation in Louisiana, as in the rest of the country, depended on company size.
About 60 percent of an S&P 500 CEO’s compensation comes in the form of equity, while small-cap companies fall in the range of 40 percent to 45 percent, Boyd said.
“A bigger company is worth more, and so they have more equity to give,” Boyd said.
Most companies have moved, or are moving, to make the majority of pay based on performance, with some sort of incentive attached.
Peter Ricchiuti, who heads Tulane University’s small cap research fund, said public companies shifted from stock options to restricted stock as nonsalary compensation about 10 years ago.
Generally, shareholders prefer compensation packages that are tied to a company’s financial and stock performance, he said. It’s consistently high salaries for under performing public companies that raise shareholders’ ire.
Bloxham said a number of studies have shown that giving CEOs big stock awards doesn’t necessarily lead to behavior that benefits the average shareholder.
Executives have a tremendous advantage in terms of information and can trade more advantageously because of it. The awards are often flexible so executives don’t have to hold onto the shares long term or until their term as CEO ends.
One has to look no further than the financial crisis to see evidence of the compensation packages’ unintended consequences, Bloxham said. A number of CEOs were taking more risks at a time when they should have been conservative, to the detriment of the economy and shareholders.
Bloxham said that although it appears the huge pay gap between a CEO and the average worker will continue — U.S. Labor Department figures show workers’ wages rose less than 2 percent in 2013 — some boards recognize that the disparity hurts morale, especially when the company makes layoffs.
Albemarle Corp. is one example of this, Bloxham said. CEO Luther C. Kissam IV compensation dropped by $1.1 million in 2013 to $5.4 million, as shareholder return dropped from 22.2 percent to 3.6 percent.
“Are these still really huge figures? Yes. But the fact that there’s an attempt to hold the line, I think is a positive in this decade-old problem of CEO pay being so much greater than the average worker,” Bloxham said.
Follow Ted Griggs on Twitter @tedgriggsbr