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The Drought Is Over (at Least for C.E.O.’s)

Happy days are back — in the corner office, at least.

After shrinking during the 2008-9 recession, paychecks for top American executives are growing again — in many cases, significantly so.

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Rarely has the view from the corner office seemed so at odds with the view from the street corner.

At a time when millions of Americans are trying to hang on to homes and millions more are trying to hang on to jobs, the chief executives of major corporations like 3M,General Electric and Cisco Systemsare making as much today as they were before the recession hit. Indeed, some are making even more.

The disparity is especially stark as companies are swimming in cash. In the fourth quarter, profits at American businesses were up an astounding 29.2 percent, the fastest growth in more than 60 years. Collectively, American corporations logged profits at an annual rate of $1.678 trillion.

So far, this recovery has not trickled down. After two relatively lean years, C.E.O.’s in finance, technology, energy and beyond are pulling down multimillion-dollar paychecks. What many of these executives aren’t doing, however, is hiring.

Unemployment, although down from its peak, stood at 8.8 percent in March. And few economists predict the jobless rate will drop substantially anytime soon.

For the average C.E.O., however, the good times have returned. The median pay for top executives at 200 major companies was $9.6 million last year. That was a 12 percent increase over 2009, according to a study conducted for The New York Times by Equilar, a compensation consulting firm based in Redwood City, Calif.

Many if not most of the corporations run by these executives are doing better than they were in the downturn. Many businesses were hit so hard by the recession that even small improvements in sales and profits look good by comparison.

But C.E.O. pay is also on the rise again at companies like Capital Oneand Goldman Sachs , which survived the economic storm with the help of all those taxpayer-financed bailouts.

Against such a backdrop, it’s noteworthy that recent moves to empower shareholders seem to have done little to tamp down corporate enthusiasm for paying top dollar to top executives. This is generally the season when companies hold annual meetings for their shareholders.

Under new rules included in the Dodd-Frank financial regulations, nearly all public companies must now give shareholders a say on executive pay. Analysts and corporate governance experts are wondering how these votes will play out, even though companies are under no obligation to heed their shareholders’ advice.

“What’s funny about pay is that when the market is going up, it covers a lot of sins,” said David F. Larcker, director of the corporate governance research program at the Stanford Business School. It is when the market “is going sideways or down that funny things happen,” he said: “Considering some of the current pay packages, shareholders want to see strong results.”

On this year’s list, the highest-paid C.E.O. was Philippe P. Dauman of Viacom , who made $84.5 million in just nine months. (Viacom changed its fiscal year-end to September from December.)

Viacom has said that the compensation was inflated by one-time stock awards linked to a long-term contract signed last year.

Also at the top was Ray R. Irani, the C.E.O. of Occidental Petroleum, who took home $76.1 million last year, up 142 percent from the previous one. Last year, the board awarded Mr. Irani a $33 million cash bonus plus $40.3 million in stock awards, more than double what he received in 2009.

Mr. Irani is retiring this year, and Occidental has said that it has set higher hurdles that will significantly reduce executive pay packages.

Lawrence J. Ellison of Oracle, the software giant, followed close behind, with a $70.1 million payout, though that is down 17 percent from 2009. Still, Mr. Ellison’s fortunes are just fine: he had more than $26.3 billion in stock and other holdings in Oracle in 2010.

UNLIKE some previous years, 2010 registered broad gains in executive pay, benefiting C.E.O.’s from nearly all parts of the economy.

Many consumer products companies also offered rich pay packages, including one for John F. Lundgren, chief executive of Stanley Black & Decker , whose pay rose 253 percent, to $32.57 million, after a huge stock award. His counterpart at Emerson Electric , David N. Farr, saw his pay rise 233 percent, to $22.9 million, also because he was granted millions in stock.

Most executive compensation plans consist of stock options that ballooned as markets recovered after the financial crisis. Although executives typically have to wait several years before cashing in new options, the booming stock market still meant that those options were a bonanza for many chiefs, said Bruce H. Goldfarb, a compensation consultant based in New York.

The chief executive of Ford Motor , Alan R. Mulally, made $26.5 million in total pay, up 48 percent over the previous year as a result of big stock option awards. Ford was the only one of Detroit’s Big Three automakers that did not receive a government bailout, and its stock value rose 68 percent last year.

New government regulations put in place after the financial crisis have emboldened some activist shareholders to try again to rein in compensation they deem excessive and undeserved.

"While companies are making many tactical decisions about what to pay executives, it’s all being done in the context of trying to make sure they get a favorable vote on say on pay." -managing partner, Pay Governance, Ira T. Kay,

Although companies will not be bound by such votes, they will have to disclose the results in reports filed with the Securities and Exchange Commission, as well as how they considered the voting in setting subsequent executive pay.

Still, it remains to be seen whether these changes have any teeth. For “say on pay” votes, there is no standard for what percentage of shareholder votes constitutes an endorsement or a rebuttal of policies. Even the prospect of the public votes, though, appears to have altered the relationship between investors and corporate executives on many discussions in recent months.

“I’ve been in two client meetings a week for the past four months to help determine this year’s compensation plans,” said Ira T. Kay, a managing partner at Pay Governance, a compensation consulting firm in New York. “While companies are making many tactical decisions about what to pay executives, it’s all being done in the context of trying to make sure they get a favorable vote on say on pay.”

There are some early signs that shareholders are pushing back and demanding to be heard on what they deem as excessive pay packages.

Just weeks into this proxy season, a majority of voting shareholders at four companies have handed rebukes to management over pay plans: Hewlett-Packard, Beazer Homes USA, the Jacobs Engineering Group and Shuffle Master, a maker of casino equipment.

By comparison, in the entire proxy season last year, just three companies — KeyCorp , Occidental Petroleum and the former Motorola (now split into two companies) — received majority negative votes on corporate pay packages.

Shareholder frustration was probably most evident in recent weeks in the unusually bitter public spat at Hewlett-Packard . H.P.’s board has already been heavily criticized for its handling of the ouster last year of its former chief, Mark V. Hurd, after an H.P. investigation uncovered business conduct violations related to a personal relationship with a contractor.

Two of the most powerful shareholder advisory groups issued highly critical public reports recommending that investors this year vote against H.P.’s executive pay plans and current board members, saying that the company highly overpaid its executives.

In a report in early March, one advisory firm, Glass, Lewis & Company, gave H.P. a grade of D on a scale of A to F. It said H.P. paid its executives more than the median of 33 other similar-size companies and faulted the board for the $35 million severance payout to Mr. Hurd, now a president of Oracle .

In a second report, the proxy advisory firm Institutional Shareholder Services criticized H.P. for what it called its generous executive compensation that “rewards executives even if the company performs poorly.”

H.P. rejected the criticism in a letter to shareholders in March, saying the recommendations were flawed. But at a packed annual meeting in an Arlington, Va., hotel late last month, a majority of shareholders voted against approving the robust executive pay packages.

The company said the compensation plans were under review.

“While we are disappointed with the outcome of the advisory shareholder vote, H.P. intends to carefully consider our shareholders’ perspectives regarding executive compensation matters and will take those views under advisement when making future decisions relating to executive compensation,” the company said in a statement.

True power for shareholders may come when executives who perform badly or whose companies are accused of fraud are required to forfeit their multimillion-dollar payouts.

Regulators forced just such a concession with the chief executive of Beazer Homes, Ian J. McCarthy. Though he was not charged personally, in a settlement with the S.E.C. last month, Mr. McCarthy agreed to return $6.5 million in compensation that he had received while the company was accused of filing inaccurate financial statements in 2006. Beazer restated its results for that year and resolved the S.E.C.’s claims in 2008 without paying penalties or admitting any wrongdoing.

Such clawbacks have rarely been used, but were a main feature of the Sarbanes-Oxley Act of 2002, which was passed after extensive frauds at Enron and WorldCom.

In late March, investors in Beazer Homes also filed a lawsuit against directors of the company, accusing the board of improperly increasing pay for executives in 2010 despite the company’s $34 million net loss that year. The losses were blamed on poor sales of existing homes and little demand for new ones. Beazer said it would not comment on pending litigation.

CAROL BOWIE, director of research at Institutional Shareholder Services, said that while executive compensation would probably keep rising and outstrip wage increases in the economy, pay packages could be entering a new era of investor scrutiny.

With “say on pay” voting, investors are “in a moment when the rubber meets the road,” Ms. Bowie said. “They have a tool — maybe it’s a blunt one — but it can help them express their frustration and ensure the buck stops with them.”



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