The bull market bump

A sustained bull market helped boost executive compensation in Virginia last year.

Total CEO compensation at Virginia’s largest publicly traded companies increased an average of 12.1 percent during 2016 as a bull market continued to deliver higher shareholder returns.

Altogether this group of 43 executives earned an average total compensation of $8.42 million.

At the top of the heap was John J. Haley, CEO of Willis Towers Watson. Haley led Arlington-based Towers Watson before its 2016 merger with Willis Group Holdings of London. He had a pay package last year that eclipsed $28 million.

The merger created a professional services, risk management and insurance brokerage company with 39,000 employees in more than 120 countries.

As CEO of the combined company, Haley received a stock award worth of $24.6 million as part of his 2016 compensation package.

Haley’s pay was included in the findings of an annual study of CEO pay at Virginia-based public companies with annual revenues of more than $1 billion.

Virginia Business worked on the project with Equilar, an executive compensation consulting firm headquartered in Redwood, Calif.  Equilar’s analysis is based on proxy statements filed by the companies with federal regulators this spring.

Total direct compensation includes a CEO’s salary, cash bonus, stock and option awards, and other financial incentives. Equilar calculates equity awards on company-disclosed valuations made on the day the awards are granted. The financial incentives include the value of perks such as executive physicals, the use of a corporate jet and financial and tax planning services.

Six Virginia CEOs on national list
While Virginia’s average of $8.4 million in total compensation falls below the 2016 national average of about $13 million, six of the state’s executives earned enough to be ranked on Equilar’s list of the 200 highest-paid CEOs of large U.S. publicly traded companies.

They are: Haley, $28.2 million; No. 19; Martin Barrington, Altria Group, $24.2 million, No.  35; Thomas Greco, Advance Auto Parts, $22.8 million, No. 37; Phebe Novakovic, General Dynamics, $21.2 million, No. 51; Richard Fairbank, Capital One Financial Corp., $16.9 million, No. 102; and Wes Bush, Northrop Grumman, $16.8 million, No. 106.

The highest paid CEO among the top 200 was Thomas Rutledge, CEO of Charter Communications, who earned $98 million.

Missing from the top 200 list was Virginia’s J. Michael Lawrie, the former CEO oComputer Sciences Corp. (CSC). He earned total compensation of $18.7 million in 2016.  The omission was due to the fact that CSC was completing its merger with the Enterprise Services business of Hewlett Packard Enterprise, and its data were not available when Equilar was creating its list.

Lawrie now is chairman, president and CEO of the combined company, DXC Technology, which has its headquarters in Tysons Corner.

In Virginia, the second-highest paid CEO behind Haley was Barrington, who heads Altria, a tobacco conglomerate based in Richmond.

His total 2016 compensation, $24.2 million, came with a total shareholder return of 20 percent. That pay package was more than double what he received the year before, $10.7 million.

The only woman in Virginia’s top 10 was Novakovic. General Dynamics, an aerospace and defense company based in Falls Church, had a strong year in 2016, seeing a total shareholder return of 28 percent.  Novakovic also received the highest bonus among all Virginia CEOs on the Equilar list, $5.2 million.

Overall, CEO bonuses in Virginia were up an average of 19 percent. Thomas F. Farrell II of Dominion Energy saw the biggest percentage increase in bonus, at 415 percent. His 2015 bonus was $366,432. In 2016, it jumped to $1,887,126.

The executive seeing the biggest leap in total compensation was George L. Holm, CEO of Performance Food Group. His pay package rose from $1.7 million in 2015 to $6 million in 2016, or an increase of 248 percent.

On the other end of the spectrum was Donald H. Layton, CEO of Federal Home Loan Mortgage, also known as Freddie Mac.  He sustained the largest percentage loss in total compensation, 65 percent, when it dropped from $2 million in 2015 to $701,609 in 2016.

Pay for performance
As in recent years, there increasingly has been an emphasis on tying a CEO’s compensation to achieving performance goals.

Dan Marcec, director of communications for Equilar, says the biggest trend in CEO compensation is pay for performance. “The CEO will be paid in stock or options, contingent on certain performance goals,” Marcec says.

All but about half a dozen of the state’s public CEOs received performance-based equity awards, averaging $5.2 million, or about 62 percent of their total average compensation of $8.4 million.

“The introduction of Say on Pay in 2011, or the right of shareholders to vote on and approve executive pay packages, brought additional scrutiny to CEO pay and its alignment with company performance and shareholder interests,” Equilar says in its survey of U.S. CEO pay.

Salary has become only a small sliver of a CEO’s payday. In fact, the average base salary of the CEOs in the Virginia study declined 2.5 percent in 2016 to $980,160.  In Equilar’s national study of CEOs, median salary climbed about 1 percent and annual bonuses rose about 5 percent.

Across the U.S., Marcec says, CEO pay has been going up consistently for the past eight years since the financial crisis.

Looking over the Virginia list of CEOs, Marcec was struck by the number of CEOs (10) who have not been in their positions two years.  Typically, new CEOs receive a large stock grant to ensure that they will stay with their company rather than jump at the next opportunity.

Competition for talent
While CEO pay may seem excessive to some, Marcec says it all comes down to the criteria involved in hiring any new employee, particularly at the executive level.

“You look at the pool of talent, the competition for that talent and what the market is. Companies want to say our CEO is the best of the best,” Marcec says, noting that a company’s compensation committee makes the final decision on CEO pay.

Although CEO pay is up in Virginia, and across the U.S., Worldat­Work, a Washington, D.C., trade group, has forecast in its 2016-17 Salary Budget Survey that U.S. employers were expected to boost worker pay by an average of only 3 percent this year, the same as 2016.

The disparity between executive pay vs. employees may become clearer next year. That’s when companies will begin reporting the ratio of CEO pay to the median employee in filings with the U. S. Securities and Exchange Commission. While some companies anticipated that the rule might be amended or repealed after Donald Trump’s election as president, it remains in place for now.  So next year’s proxies may reveal more about CEO pay and how it compares to the average U.S. worker.