Volume 22, No. 9: 2012 S&P 500 Executive Pay: “I’ll Pour. You Say When.”
Like a medic pouring a cold drink for a victim of heat stroke, investors continually treat executives to long, tall pay packages that seem to go on forever. While investors are affected by the amount of compensation given – it does come out of their own pocket, after all – they rarely do more than let managers decide when they’ve had enough. “Say-on-pay” votes where the pay is disapproved are rare. So are negative votes on new equity pay plans or pension amendments.
To really get a handle on the effect management compensation has on shareholder interests, investors need to dig deeply into proxies just to get an idea of what the top five executives are costing them. Even though they comprise only a fraction of the total employees, those executives cost shareholders of 473 S&P 500 companies a whopping $15.6 billion in 2012 – over 10% higher than five years ago in the salad days of pre-crisis 2007.
Investors might be surprised at the size of executive pay packages if they compared them to net income. Moreover, they would probably wonder about the size of compensation they don’t see. The miserable state of human capital cost disclosures ensures that investors stay in the dark.