Ever wonder what it's like to earn $145 million in any given year? Well, perhaps you should ask the CEO of McKesson Corporation (NYSE: MCK), Mr. John Hammergren, because according to GMI's 2011 CEO Pay Survey , Mr. Hammergren was the most well-compensated CEO among companies surveyed! Indeed, given recent economic woes it may be startling to see one person earning that much money, and while Mr. Hammergren is at the top, he is certainly not alone. Here, we look at components of compensation as well as who the best-paid CEOs are, in terms of total compensation and base salary.
CEO compensation can be a complicated matter, as many CEOs devote an inordinate amount of time to leading their companies, building new business while maintaining existing business and responding to shareholder demands, among other activities. Therefore, CEOs tend to receive benefits that help them execute the responsibilities associated with their position. While some components of CEO compensation might sound familiar, like base salary, bonus and benefits, as well as cell phone reimbursement and stock-based compensation, some of the benefits enjoyed by some of the best-paid CEOs are downright mind-blowing!
For example, several CEOs enjoy perquisites ranging from:
- a generous base salary
- performance-based bonus
- use of corporate aircraft
- private home security
- gym/club/professional memberships
- tax reimbursements
- time-based equity grants
- pension payments / deferred compensation
For these reasons, it is useful to rank CEO pay by Total Realized Compensation, a metric which endeavors to capture all components of what a CEO received during the year – base salary, bonus, non-equity & equity compensation, pension payments, and all other forms of compensation – as presented by the GMI's 2011 CEO Pay Survey. (For more on CEOs, check out 5 Outrageous CEO Spending Abuses And Perks.)
Who Decides upon Compensation?
A committee formed by a company's Board of Directors determines CEO and management compensation.
Where Can I Find Information About a CEO's Compensation?
Publicly traded companies are required to file a proxy statement prior to their annual shareholders' meeting, which contains information regarding CEO compensation as well as that of other senior members of management. While reading these filings is rarely entertaining, the "Compensation Discussion & Analysis" section of a proxy often sheds interesting insight into the factors driving the Compensation Committee's rationale. In many cases, compensation is influenced by how CEOs at comparable companies are paid, though a company's share price performance or earnings growth may also factor into the equation.
Who Earned the Most?
The two most well-compensated CEOs worked at healthcare provider and service companies: John Hammergren of McKesson Corporation earned more than $145 million, while Joel Gemunder of Omnicare, Inc. (NYSE: OCR) came in at a distant second, with more than $98 million. In both cases, the bulk of these CEOs' compensation did not come from base salary or bonus; rather, it came mostly from stock-related compensation or pension and deferred compensation.
Have a look at the table below for a ranking of CEOs by compensation – one of the more familiar names on the list is that of Ralph Lauren, the CEO of Polo Ralph Lauren Corporation (NYSE: RL), who pulled in almost $67 million during 2010.
|Company||CEO Name||Industry||Total Realized Compensation*|
|McKesson Corporation||John H. Hammergren||Health Care Provider & Services||$145,266,971|
|Omnicare, Inc.||Joel F. Gemunder||Health Care Provider & Services||$98,283,242|
|TRW Automotive Holdings Corp.||John C. Plant||Auto Components||$76,841,646|
|Verisk Analytics, Inc.||Frank Coyne||Professional Services||$69,416,726|
|CVS Caremark Corporation||Thomas M. Ryan||Food & Staples Retailing||$68,079,823|
|General Growth Properties, Inc.||Adam Metz||Real Estate Investment Trusts||$66,707,460|
|Polo Ralph Lauren Corporation||Ralph Lauren||Textiles, Apparel & Luxury Goods||$66,651,515|
|Vornado Realty Trust||Michael D. Fascitelli||Real Estate Investment Trusts||$64,402,468|
|Aetna Inc.||Ronald A. Williams||Health Care Provider & Services||$57,787,786|
|GAMCO Investors, Inc.||Mario J. Gabelli||Capital Markets||$56,608,736|
Source: GMI's 2011 CEO Pay Survey released in December 2011; *total realized compensation represents compensation received by the CEO, rather than any notional estimates, accounting costs, or other uncertainties.
Ranking CEOs by Base Salaries
Of course, if we were simply to look at CEOs' base salaries, the best-paid CEO list would look much different! As you can see by the table below, the highest base salaries ranged from $3.3 million to $8.1 million per year – that's $275,000 to $675,000 per month! This compares to the median US household income of $49,445 per year in 2010.
|Company||CEO Name||Base Salary|
|News Corporation||Keith Rupert Murdoch||$8,100,000|
|Discover Financial Services||David W. Nelms||$4,550,000|
|CBS Corporation||Leslie Moonves||$3,513,462|
|Associated Banc-Corp||Philip B. Flynn||$3,456,000|
|General Electric Company||Jeffrey R. Inmelt||$3,300,000|
Source: GMI's 2011 CEO Pay Survey released in December 2011 (LAAA)
The Bottom Line
Essentially, there are several factors to be considered when sizing-up a CEO's pay package, as CEOs tend to receive benefits that are not always obvious at first glance. Nevertheless, it certainly pays to be in charge, as the best-paid CEOs earn more in one month than most Americans earn in a year! (To learn more, read A Guide To CEO Compensation.)