Top execs at public companies in Washington, Oregon and Idaho outearned their national counterparts last year, by some measures — and the highest compensation package at any U.S. publicly traded company went to the CEO of Bellevue-based Expedia.
Pay for CEOs at large public companies nationwide leveled off last year and even fell by some measures — but not in the Northwest.
Median pay for public company CEOs in Washington, Oregon and Idaho jumped 34 percent last year to $2.1 million, according to The 2016 Seattle Times/Equilar CEO Compensation study.
In fact, the nation’s best-paid CEO in 2015 was a Northwest executive. The compensation package for Dara Khosrowshahi, chief executive of Bellevue-based online travel company Expedia, was $94.6 million.
Coming in a distant second among Northwest CEOs was John Legere of Bellevue-based T-Mobile US. His compensation package added up to $24.4 million.
The pay disclosures are part of an annual cycle in the continuing debate over CEO pay, a debate that is revived each spring when thousands of public companies file proxy statements filled with compensation details.
Growth in median pay for CEOs of S&P 500 companies has slowed since 2014, data show. Their median pay in 2015 increased a scant 0.9 percent to $10.4 million, according to Equilar. The median is the midpoint in a stack of numbers ranked in order.
For the 200 highest-paid CEOs nationwide, average pay even fell 14.6 percent to $19.3 million last year, according to another study by Equilar.
Among Northwest public companies, however, average pay for CEOs increased 20.5 percent to $4.3 million.
Pay gets scrutiny
Experts offer various explanations for the diminished pay raises among CEOs at the nation’s largest companies.
Many companies struggled with weaker sales and earnings in 2015. The year was miserable for U.S. stocks, which posted their worst annual performance since 2008. The broad S&P 500 index ended the year down 0.7 percent.
Under those circumstances, CEOs were less likely to hit performance targets, and corporate boards were less generous with annual bonuses.
The growing influence of public-company shareholders and the proxy firms that advise them is also affecting CEO pay, observers say.
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“Executive pay has really become a marquee topic for discussion between boards and their shareholders,” said Matthew Goforth, research and content specialist at Equilar, an executive-pay research firm based in Redwood City, Calif.
Public-company shareholders since 2011 have had a feedback mechanism for voicing support — or lack thereof — on CEO pay. That year marked the beginning of “say-on-pay votes,” in which investors cast advisory ballots on a company’s compensation package.
Most say-on-pay votes pass by wide margins, but passage rates of less than 70 percent are considered red flags for investor dissatisfaction over executive pay packages and the company’s performance.
Shareholders of CTI BioPharma, the Seattle biotech, raised a red flag in April, when they narrowly approved the company’s executive pay plan with an affirmative vote of 53 percent, regulatory filings show.
CTI’s share price in 2015 dropped 48 percent to close the year at $1.23. This month the company’s stock has traded for about 45 cents a share.
As of June 6, CTI’s three-year trailing return, a measure of income and capital gains for investors, was minus 29.9 percent, according to Morningstar. That was well below the benchmark return of 11.4 percent for the S&P 500.
Meanwhile, CTI President and CEO James Bianco’s total pay in 2015 increased 17 percent to $7.1 million. The company did not respond to requests for comment.
Brandon Rees, deputy director of the AFL-CIO Office of Investment in Washington, D.C., is convinced that shareholders are instrumental in slowing the growth in CEO pay.
“There were fewer failed say-on-pay votes this year,” Rees said. “That indicates that companies are more aggressive about policing pay amounts to avoid embarrassing pay votes.”
Rees also thinks board members are becoming more aware of the pay disparities between their companies’ rank-and-file workers and the executives in the corner offices. Research suggests a connection between pay disparity and workforce morale, he said.
Pay differentials will soon be more readily available. Under federal regulations adopted last year, public companies must disclose a ratio composed of CEO pay and median employee pay. The new rule takes effect Jan. 1.
Northwest public companies may have posted bigger gains in CEO pay than large companies nationwide because of the mix of corporations in the three-state region.
Tech companies abound in the Seattle area, Greater Portland and Boise. The biotech sector is also well represented. Chief executives of those industries are often richly compensated.
Of the 20 Northwest CEOs with the largest pay increases in 2015, 12 were chief executives in the tech sector, including online retailing and telecommunication, Equilar data show. Others in the top 20 included CEOs of such old-school sectors as banking, manufacturing and auto sales.
The age class of Northwest public companies may be a factor.
“We’re a younger place in general,” said Bill Conerly, an economist based in Lake Oswego, Ore. “I think there are more new companies in the Northwest. That’s the impression I get.”
Young companies that get traction can expand quickly, resulting in big rewards for executives who steer them into the stratosphere.
Expedia has grown substantially under Khosrowshahi. He became director and CEO of the online travel company when it was spun off IAC/InterActiveCorp in 2005.
In the five years leading up to the end of 2015, Expedia’s net income increased 62 percent to $764 million. The company’s share price jumped 78 percent to $109 at the end of last year. Earlier this month, Expedia’s three-year trailing return was 26.3 percent, according to Morningstar.
When Khosrowshahi’s employment contract was nearing its end in early 2015, Expedia’s compensation committee expressed “substantial desire to retain Mr. Khosrowshahi’s services for the long-term,” the company said in a regulatory filing.
The result was a new employment contract worth $94.6 million, although 96 percent of Khosrowshahi’s compensation is stock options. He won’t collect all of the options unless he stays with the company and hits specific performance targets.
In a statement, Expedia spokeswoman Sarah Gavin called Khosrowshahi a “transformational CEO.”
“His leadership has elevated the company into a global leader in the online travel market,” Gavin said, “and he continues to guide the organization along a growth trajectory.”
When Expedia last held a say-on-pay vote, in 2014, Khosrowshahi’s total pay was $9.6 million. Shareholders that year approved the company’s compensation package with an affirmative vote of 93.5 percent.
Expedia shareholders will soon get a chance to weigh in on Khosrowshahi’s new pay package. The company’s next say-on-pay vote is in 2017.
One easy prediction is that CEO pay will continue to be a hot-button issue next year and for the foreseeable future.
The debate over what drives executive compensation — market forces or powerful CEOs and compliant boards — shows no sign of abating. In recent years the subject of CEO pay has been swept up by the larger issue of income inequality, further politicizing the issue.
Federal disclosure rules require public companies to disclose an enormous amount of information about executive pay, providing a considerable amount of oxygen for the debate.
The disclosures peak during the height of the proxy season in the spring. About nine months from now, the debate over CEO pay will be back at full throttle — again.