A recent analysis of 50 companies in the Washington, D.C. metropolitan region finds that the average CEO pay package fell nearly 3 percent from 2012 to 2013. Nationally, average compensation for the 1,620 companies examined remained about even, dropping 0.8 percent. The analysis was done by ISS Corporate Services, a provider of research tools on executive compensation and a subsidiary of proxy adviser Institutional Shareholder Services.
Even when you exclude calculations for CEO pensions, which the researcher recommends doing since that's more of an accounting quirk, the average Washington-area CEO saw only a 1 percent raise in 2013, compared to a 6.2 percent raise for CEOs surveyed nationally.
But interestingly, the tables turn when you look at median numbers rather than the average. Excluding the pension, the median pay for local CEOs jumped 29.5 percent from 2012 to 2013, while nationally it went up only 10 percent.
What does all that mean?
John Roe, executive director of ISS Corporate Services, says it reveals that CEOs at mid-sized companies in the region are seeing healthy boosts to their pay, bumping up the median total, but that top earners' paydays have come under pressure, bringing the average down overall.
Four of the five highest-paid Washington-area CEOs, for instance, earned less in 2013 than in 2012. "That's what brings the number down," Roe says, "because their pay packages are so large."
One example is David Zaslav, the leader of Silver Springs, Md.-based Discovery Communications. In 2012, Zaslav's total package reached nearly $50 million, which included a $25.3 million equity award and a $15.8 million option grant. Yet while his pay is still the highest in the area according to the analysis, it dropped 33 percent in 2013 — to $33 million.
Meanwhile, CEOs around the middle of the pack have seen healthy upticks in their pay. Mark Brugger, the head of Bethesda, Md.-based DiamondRock Hospitality, for instance, saw his pay jump 28 percent from 2012 to 2013. It rose from $3.2 million to $4.2 million, thanks largely to a higher annual bonus and stock award.
While mapping the trend in pay size may be a bit complex, what's much more straightforward in the analysis is the trend in composition of pay packages. CEOs are seeing more of their pay tied to stock compensation and increasingly less of it in the form of cash, Roe says. Meanwhile, shareholder pressure is causing more pay to be tied to stock grants, more scrutiny to be placed on executive perks, and stock options to fall out of favor.
"Some institutional investors see large options grants as potentially inducing risky behavior on the part of chief executives," Roe says. The fear is that CEOs might make short-term moves or big risky bets to boost the stock price before any options expire that might otherwise be underwater.
Those trends are especially pronounced in the Washington region. The median increase in CEOs' base salaries — now only a fraction of the total pay package — was just 1.4 percent in the area, while salaries grew 4.8 percent nationally. Median pay in the "all other" category, which includes perks like corporate jet travel or retirement benefits, was down 8.7 percent in the D.C. area, compared with a 0.8 percent increase nationwide. In addition, fewer local CEOs received stock options.
Is it possible local companies are simply more aware of the increasing political pressures and public scrutiny on executive pay? With an analysis of 47 proxies so far this year (Roe removed three companies from his analysis that had a CEO change), one can't really tell. "The increases we're seeing in D.C. are more modest on the whole," Roe says. "But where they are up, they're coming from long-term awards that are much more shareholder-friendly and tied to performance."