Study Finds BofA’s Moynihan, IBM’s Rometty Among Underpaid CEOs
Perhaps the nation’s best known expert on executive compensation in the U.S., Graef Crystal’s most recent study revealed that Bank of America Corp.’s (NYSE:BAC) Brian T. Moynihan was among the most underpaid chief executive officers in the country last year, according to Bloomberg.
Crystal’s study tracked 177 different firms in the Standard & Poor’s 500 Index; of those, 99 companies are supposedly paying their CEOs at or below what Crystal terms the “going rate.” Brian Moynihan took home $13.1 million in 2013, which Crystal says is about 30 percent below the “going rate,” for chief executives.
Ideally, Crystal says, CEOs should be paid based on performance; that is, CEOs pay should get a boost when the company’s performance improves and similarly, if the company’s performance stalls or falls, the CEOs pay should also take a cut. According to Crystal, the problem is that while CEOs are often given “raises” when a company’s performance improves, their compensation doesn’t always, or even most of the time, get cut if performance slides.
“If you go down the aisle at the executive pay supermarket, the quality relationship to price is not as robust as in a regular supermarket,” said pay expert Graef Crystal, in a phone interview with Bloomberg. “You can pick up someone of very good performance for less than someone with very poor performance.”
Crystal’s “going rate” was determined based on what each of the 177 executives included in the study “should” be paid on average based on that company’s sales, total return versus the S&P 500, and the number of years they had served with the company, according to Bloomberg.
Crystal compared the going rate he’d calculated for each of these executives and compared them with the company-reported CEO pay in their summary compensation tables and compiled a list of the deviations between the two numbers. According to Crystal’s calculations then, Moynihan’s “going rate” for 2013 should have been about $18.8 million, which is about 30 percent more than what the Bank of America CEO was actually paid. In 2013, Moynihan took home $14 million, including $12.5 million in stock grants and just $1.5 million salary.
But while Moynihan may have been underpaid according to Crystal’s study, several other CEOs were taking home more than what they were actually worth in 2013; among those were AT&T’s Randall Stephenson, who was paid $23.2 million in 2013, according to Bloomberg. That figure means that Stephenson was overpaid by about 19 percent if you’re following Crystal’s model.
Often, CEOs are paid more than they ought to be out of nostalgia. “If you’ve been there for a long time and we think you’re great, and we had a down year, we’re probably going to give you the benefit of the doubt,” said Alan Johnson, a managing director at the compensation consultant Johnson Associates in a phone interview with Bloomberg. “Sometimes it’s appropriate, sometimes it’s nostalgia,” he added.
Another CEO who came in as slightly underpaid was IBM’s Virginia Rometty. IBM is among a number of companies that have strived in recent years to closely tie performance to compensation. Rometty’s going rate, according to Crystal, was $15.4 million, though she took home around 9.5 percent less.
Refreshingly, Crystal also ran the numbers to determine whether being a male or female could account for some of the variations in CEO pay, after controlling for variables, and he said it didn’t make a difference.