Bringing in the big bucks

Virginia’s top-earning CEOs brought home the bacon in a big way in 2018 and were instant millionaires many times over, with average total compensation rounding out at about $8.17 million and change, nearly a million dollars more than their average total compensation the previous year, $7.26 million.

Conducted by Redwood City, California-based executive compensation data firm Equilar, Virginia Business’ most recent pay survey of CEOs in Virginia looked at 40 public companies with annual revenues of least $1 billion.

But in an oddity, 41 CEOs were surveyed.

So, how is it that you have 40 companies surveyed, but 41 CEOs?

That’s because Richmond-based Markel Corp., a holding company for insurance, reinsurance and investment operations around the world, has two co-CEOs: Thomas S. Gayner and Richard R. Whitt III. Last year, Gayner received total compensation of $3,713,001 — $6,240 more than Whitt’s total compensation of $3,706,761. Both received a 14% bump in pay over 2017.

To determine CEO pay, Equilar tallies salary, bonus, perks, stock awards, stock option awards and other aspects of overall compensation.

There has been more scrutiny of CEO compensation since Congress passed the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act, which contained a “say on pay” provision, which gives shareholders the right to hold advisory or nonbinding votes on executive pay packages.

Under U.S. Securities and Exchange Commission rules, most companies also disclose the ratio of their CEO pay to the compensation of their median employee, in part to highlight the vast pay differential between top executives and those who work for them.

Despite those measures, CEO pay keeps climbing.

Top earners
When Equilar measured the change in executive compensation between 2017 and 2018 for each CEO, it included only those who have been in place for at least two complete years.

That’s so partial-year compensation and new-hire awards don’t skew the calculations. That meant that the 2017 compensation of seven CEOs wasn’t part of the equation.

Looking at it that way, the change in pay for top-paid Virginia CEOs rose 12.5% in 2018.

Virginia’s top-earning CEO in 2018 was Paul Saville of Reston-based NVR Inc., one of the nation’s biggest homebuilders and parent company of Ryan Homes.

His total 2018 compensation was $39.13 million, compared with $3.54 million in 2017.

In other words, a jump of 1,006% year over year.

(Don’t you wish your stock portfolio performed as well?)

The second-highest compensation bump percentage-wise went to John D. Gottwald, president and chief executive of Richmond-based Tredegar Corp.,  a manufacturer of plastic films and aluminum extrusions. Gottwald’s 2018 compensation jumped by 510% to $2.54 million. He  retired earlier this year.

What the neighbors make
The compensation paid to NVR’s Saville, the highest earner, easily eclipsed the compensation of the highest-paid CEO in neighboring North Carolina, Bank of American Chairman and CEO Brian Moynihan, who earned $26.5 million, according to an Associated Press survey of top earners.

However, Saville’s compensation falls far short of the largest CEO pay package in neighboring Maryland. David Zaslav, CEO of Maryland-based cable programming group Discovery Inc., reaped $129.4 million in compensation last year, making him the highest-paid chief executive in the nation, according to another Equilar survey. His pay was bolstered by $102 million in stock options and $14.8 million in stock awards, according to the entertainment outlet Variety.

Among Virginia chief executives, Saville had the highest base salary,    $1.9 million. But the largest portion of his compensation came from a huge equity award of nearly $35.4 million.

Performance pay
Performance-based equity awards contributed heavily to the total compensation of most of the Virginia CEOs surveyed.

Equity awards for the top earners averaged $5.45 million in 2018.

That amounted to about 67% of the average Virginia CEO’s compensation ($8.2 million) last year.

Saville’s equity award was even more than that — totaling 90% of his overall compensation.

“There is still a trend towards more performance awards. We found that … 73.3% of CEOs received a performance-based, long-term incentive in 2014,

compared with 87.8% in 2018,” says Charlie Pontrelli, senior project manager at Equilar.

But does the fact that a CEO receives a big performance award mean that he or she is a great manager?

That’s one of the big debates in finance academia circles these days, according to Derek Horstmeyer, an assistant professor of finance at the George Mason University School of Business. “Some people would hope that you pay based on how they do against their competition,” he says, while others might argue that “they’re kind of along for the ride. They’re getting some of these payouts because it’s been a great bull run for 10 years.”

As earnings rise so, too, do the equity awards of many CEOs, he notes. And CEOs’ contracts usually dictate when they can cash in on those awards.

“There’s a vesting schedule. You can cash out half of it in two years and the other half in four years, things like that,” Horstmeyer says.

Christopher Nassetta, CEO of international hospitality company Hilton Worldwide Holdings Inc. in McLean, received the second-highest equity award among Virginia CEOs: $15.8 million. His total compensation package totaled nearly $19.8 million, placing him third among the state’s highest-paid CEOs.

Bonus bounty
Overall, bonuses for Virginia’s CEOs were down slightly this year, however, dropping from an average of $1.5 million in 2017 to $1.4 million in 2018.

The largest bonus among Virginia CEOs went to Phebe Novakovic, CEO of Falls Church-based aerospace and defense contractor General Dynamics Corp., the fifth-largest U.S. defense contractor. Novakovic received $4.7 million, a dip of 11% from her 2017 bonus of $5.3 million.

She was the only woman among Virginia’s top-earning CEOs in 2018, and her total compensation of $20.7 million (down from $21.2 million in 2017) placed her second among all the Virginia executives surveyed this year.

The second-highest bonus went to CEO Wesley Bush of Falls Church-based aerospace and defense contractor Northrop Grumman Corp. Bush retired as Northrop Grumman’s CEO on Jan. 1 and was succeeded by Kathy Warden, who has been with the company since 2008.

 Warden joins Novakovic as the latest woman to lead a major defense company with its headquarters in Virginia.

The largest percentage bonus increase among statewide CEOs went to Anthony “Tony” J. Moraco of Science Applications International Corp. (SAIC), a government services and information technology support company based in Reston. His 2018 bonus climbed 132% to nearly $2.7 million, up from $1.2 million the prior year.

Moraco stepped down as SAIC’s CEO on July 31. He was succeeded by Nazzic Keene, another female chief executive running a major government contracting firm in Northern Virginia.

Stratospheric compensation
In at least one respect, Virginia executives could be considered to be underpaid — their compensation falls behind that of the nation’s top 200 executives earning the most.

Equilar’s survey for The New York Times of the 200 top-paid U.S. CEOs found that their median compensation was $18.6 million, an increase of $1.1 million from the previous year.

The biggest — or perhaps smallest — CEO compensation package of all time may have gone to famed tech entrepreneur and SpaceX CEO Elon Musk, who reportedly either received $2.3 billion in stock options or less than nothing last year from his role as CEO of Tesla Inc. (Musk disputed Equilar’s assessment, stating that he lost money as Tesla’s CEO and that he has not received the $2.3 billion in stock, which is dependent on meeting performance goals that have yet to be reached.)

But back to Earth.

The U.S. Bureau of Labor Statistics reports that in 2018, the hourly earnings of the average private sector worker increased only 84 cents, a 3.2% raise.
The median household income in Virginia in 2017 was $71,535, according to the latest data from the U.S. Census Bureau.

Equilar’s research on pay for CEOs of 337 companies nationwide showed the median total compensation for CEOs totaled $12 million in 2018, a 7.2% increase from 2017.

The median pay increase for typical workers was 3% last year, according to the Equilar research.

Despite the upward spiral in total compensation for Virginia’s top-paid CEOs, not everyone shared in the abundance.

Some chief executives lost ground.

Percentage-wise, the biggest loser was Thomas J. Baltimore, chairman and president of Tysons-based Park Hotels & Resorts. His total compensation dipped 36%, from $11.9 million in 2017 to     $7.6 million in 2018.

S. Cary Dunston, chief executive of American Woodmark, a kitchen and bath cabinet manufacturer headquartered in Winchester, wasn’t too far behind. Year over year, Dunston’s total compensation declined by 33.8%, from $2.07 million in 2017 to $1.37 million in 2018.

The Virginia CEO with the lowest amount of total compensation in 2018 was Donald H. Layton of Federal Home Loan Mortgage (known as Freddie Mac), a public government-sponsored enterprise in Tysons.

His total compensation totaled $651,000 — the precise amount he received in 2017.  Layton retired as CEO on July 1 and was succeeded by David M. Brickman.

2019 Equilar Virginia CEO Pay Report