Volume 21, No. 8

S&P 500 Executive Pay: The Bread Keeps Rising:  Annual reports theoretically contain the information needed for investors to make economically rational decisions about investment - assuming they’re reading the financial statements, and that they’re rational. Yet annual reports exclude one particular ingredient paid by shareholders to get a return on their investment: management compensation.

To get a handle on management compensation, investors need to dig into the proxy statement, which discloses only a teasing sprinkle of total executive pay information: just the compensation of the top five officers. Never mind that they’re not the only five officers in the employ of shareholders - or that other highly-compensated key employees might not be called "officers." Even in that stingy information, investors are rarely treated to something as helpful as a total compensation figure for the five officers. A booty total remains a do-it-yourself endeavor of perhaps only the most curious investors. In this report, we’ve taken that endeavor to the 500th degree: from the summary compensation tables of the S&P 500 companies, we’ve developed some total information that compares strikingly to other shareholder yardsticks.

Shareholders employ managers to be efficient and shepherd resources - but they shouldn’t expect them to take that attitude with their own pay. It’s a job that shareholders must do for themselves. If shareholders were more aware of just how much managers were paid for their services, there might be more "no on pay" votes every proxy season. Strong earnings performance in 2011 seems to have enabled gains in executive pay. Total compensation for the S&P 500’s executive clusters climbed 7.7% in 2011; CEO pay increased 12.8%. It was indeed a very good year.

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