The Inbox – Trends in the C-Suite

| O'Neill, Ashley

Doug Parker, the Chairman and CEO of American Airlines, has just joined a small cadre of executives who earn no salaries. Before anyone starts a GoFundMe page for Mr. Parker, consider that his 2015 compensation consists of 207,672 restricted stock units, the value of which will depend upon the airline’s performance. According to the Wall Street Journal, the stock units could amount to compensation in the range of $10.7 million if calculated using the current stock price of $51.40. By comparison, Mr. Parker earned $12.3 million in 2014, 40% of which was cash in the form of a $700,000 base salary and annual cash incentives. Mark Reilly, head of Verisight, Inc., a firm of executive compensation consultants, told the Journal that this type of compensation structure is more often found in companies facing financial hardship, and the lack of salary is offset by more generous stock awards. In the case of an executive in an established, mature industry, the message seems to be that Mr. Parker believes in the stock and that he is willing to tie his compensation to its performance.  Given US Airways’ performance since its merger with American in 2013, this wouldn’t seem like an incredible risk on his part. The combined company “has soared to record profit and its stock has climbed 42% in the past year.”

CEO Succession Practices, a publication updated annually by The Conference Board, charts trends in CEO succession and turnover in S&P 500 companies. The Harvard Law School Forum on Corporate Governance and Financial Regulation summarized some of the key findings:

  • The majority of public companies delegate the CEO performance evaluation process to compensation committees.  This marks a significant departure from past practices and signals increased scrutiny of the link between performance and compensation.
  • Companies are less likely to allow a departing CEO to remain on the board due to an increased desire to maintain the board’s independence while affording the new leadership a measure of autonomy. In the same vein, incoming CEOs are less likely to have joint appointments as board chairmen. “Only 8.0 percent of the successions in 2014 involved immediate joint appointment as board chairman, down from 9.5 percent in 2013 and 18.8 percent in 2012.”
  • Charting CEO turnover rates due to dismissal can provide insight into the health of the economy. In 2014, less than 16% of CEOs left unwillingly, compared to a 23.8 rate in 2013 and the 29.4 rate recorded in 2012. “The lower dismissal rate found this year is, at least in part, a function of the marked signals of improvement in the broader U.S. economy.”
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