Talk about big paydays.
Compensation for CEOs at publicly traded companies remains a hot-button issue for shareholders and proxy advisory firms. Bloomberg recently reported that Apple Inc. (AAPL) CEO Tim Cook actually took home about $145 million in total compensation last year, far more than his reported $8.75 million. While CEOs may come under fire for how much they make, it is not the CEO who decides the compensation package, it is the compensation committee on the board of directors.
So, who exactly are the people approving the compensation package for Tim Cook and Netflix Inc.'s (NFLX) top dog Reed Hastings? BoardEx, the relationship mapping service of TheStreet Inc., examines the directors who hold this power.
A filing with the U.S. Securities and Exchange Commission (SEC) says that Cook brought home $8.7 million in 2016. But that wasn't even the half of it, not by a long shot. According to Bloomberg, Cook actually made close to $145 million, "almost all of it from awards granted back in 2011."
In a 2012 SEC filing, it states that the board of directors granted Cook, who succeeded Apple founder Steve Jobs at the helm of the tech giant in 2011, one million restricted stock units (RSUs) as a "promotion and retention award," worth more than $376 million. (The award was modified in 2013 to include performance targets.)
At the time Cook became CEO, Andrea Jung, 58, CEO of nonprofit microfinance organization Grameen America, was chair of the compensation committee, according to BoardEx. Al Gore, 69, former vice president of the United States and prominent climate activist, and Millard Drexler, 72, former CEO of the J. Crew Group, were also members of the committee. (Drexler stepped down as chief of J. Crew in June 2017).
Currently, Jung and Gore remain on the compensation committee but Disney (DIS) CEO Robert Iger replaced Drexler in 2015, according to BoardEx.
Even though Apple stock has soared nearly 200% since Cook became CEO a shareholder, Jing Zhao, challenged the pay practices at Apple at this year's annual meeting. Zhao proposed that the company "engage multiple outside independent experts or resources from the general public to reform its executive compensation principles and practices." The measure was soundly defeated by a vote of 3,018,354,923 against and 67,856,548 for the proposal.
Still, for the Say-on-Pay proposal, which gives shareholders the opportunity to cast an advisory vote to approve compensation, a majority of shareholders supported conducting advisory votes on executive compensation every one year.
Interestingly, influential proxy advisory firm Glass Lewis & Co. LLC was against the shareholder proposal, arguing that the terms of the proposal are unclear and did not elaborate on what elements of the executive compensation warrant reform.
"We believe that because shareholders are afforded opportunities to vote on the company's compensation and election of directors (including members of the compensation committee) adoption of this proposal is not warranted," Glass Lewis wrote in a February note.
This is part of a series of stories that comprise TheStreet's Blue Chip Studio, which will illuminate issues related to corporate board performance, activism, dealmakers and personalities revealed by analysis of data generated by BoardEx, a business unit of TheStreet.
It's no secret that Netflix Inc. (NFLX) has disrupted the media landscape, and the stock has performed accordingly. Netflix' share price has surged more than 5,700% in the past decade, and CEO Reed Hastings continues to reap the rewards. Hastings took home approximately $106 million in total compensation in 2016, with more than $105 million coming from "exercised options that were granted as early as 2006," Bloomberg reported.
In 2006, just four years after its initial public offering, two men from the venture capital world sat on the compensation committee: Timothy Haley, 62, co-founder of Redpoint Ventures, and Jay Hoag, 59, general partner at Technology Crossover Ventures. The committee would expand in May 2007 to include A. George (Skip) Battle, 73, former CEO of Ask Jeeves Inc, according to BoardEx (IAC/InterActiveCorp (IAC) bought Ask Jeeves Inc. in 2005 for about $2 billion).
Those three men remain on the compensation committee to this day. Notably, they are all over-tenured, having surpassed the 8.3-year average tenure for S&P 500 boards, according to leadership consulting firm Spencer Stuart. Haley has been a director for 19 years; Hoag has served as a board member for 18 years; and Battle has been a director for 12 years.
McKesson Corp. (MCK) CEO John Hammergren, 58, comes in third on Bloomberg's list, raking in more than $97 million in total compensation last year from the medical equipment provider. Most of his income, approximately $72 million, was generated by exercised options.
Christine Jacobs, the former CEO of Theragenics Corp., is the veteran on McKesson's compensation committee. Jacobs, 66, has been a member of the committee since 1999, according to BoardEx. Ed Mueller, former chairman and CEO of Qwest Communications International Inc., joined her in 2008. Fellow compensation committee members, N. Anthony Coles, chairman and CEO of Yumanity Therapeutics LLC, and Andy Bryant, chairman of Intel Corp. (INTC) , would become compensation committee members in 2014.
Notably, proxy advisory firm Glass Lewis gave McKesson's executive compensation an F grade in its proprietary pay-for-performance model, saying in a 2016 note that the company paid more compensation to its named executive officers than the median compensation for a group of comparable companies. McKesson also received a failing grade in 2015 and a "D" in 2014.
Len Schleifer, 64, CEO of Regeneron Pharmaceuticals Inc. (REGN) , brought home more than $93 million in total compensation in 2016, ranking fourth on Bloomberg's list. Nearly all of his income, about $90 million, was generated by exercised options.
Christine Poon, 65, the former Dean of Ohio State University Fisher College of Business, serves as chair of the compensation committee for the Tarrytown, N.Y.-based biotech company. Dr. Joseph Goldstein, who won the 1985 Nobel Prize for Physiology or Medicine, has been a director at Regeneron for 26 years, and joined the committee in 2004, according to BoardEx. Biotech veteran Charles Baker, 85, the former CEO of the Liposome Company Inc., was added to the committee in 2008; he has served as a director since 1989. George Sing, managing director at Lancet Capital, has also been a member of the compensation committee since 2000.
In a May note, Glass Lewis said it was concerned by the company's ongoing misalignment between pay and performance and the "largely discretionary nature" of executive compensation. The proxy advisory firm noted that Goldstein and Poon has served as member of the compensation committee for a number of years, and urged shareholders to vote against them. Both Goldstein and Poon were elected at the annual meeting in June to serve until 2020.
"While the company has steadily made reductions to the number of shares granted and reduced the quantum of awards for the year in review compared to previous levels ... the company has consistently failed to align pay with performance," Glass Lewis said.
The highest paid female CEO on Bloomberg's list was Oracle Corp.'s (ORCL) Co-CEO Safra Catz, 55, who collected $85 million in 2016. Similar to Hastings, Hammergren and Schleifer, Catz took home a large portion, $80 million, from exercised options.
Oracle's compensation committee has undergone some recent member changes. Ray Bingham, chairman of TriNet Group Inc. (TNET) , left the board in March. (Bingham also left the board of Cypress Semiconductor Corp. (CY) under pressure.) Replacing Bingham is Renee James, 53, a former Intel (INTC) executive, who now serves as chair of the committee. She joined George Conrades, chairman of Akamai Technologies Inc. (AKAM) , and Naomi Seligman, 79, who is also a director at Akamai.
Importantly, Catz's Co-CEO, Mark Hurd, received a reported $41 million in 2016.
Proxy advisory firm Glass Lewis issued a strong rebuke of the compensation committee members, saying that they may not have effectively served shareholders. Notably, at last year's annual meeting, the company's non-binding advisory resolution on executive compensation garnered support from less than 50% of the votes cast.
"We believe the concerns regarding the company's pay practices and programs are severe enough to warrant withholding votes from all members of the compensation committee who served during the past year," Glass Lewis wrote in October 2016. "While we would normally recommend that shareholders withhold votes from all members of the compensation committee on this basis, director James was only appointed to the board in February 2016."Still, both Conrades and Seligman were elected to the board, each receiving more than 2 million of the votes cast.