Stock, options fueling outsize gains for many CEOs

Scores of CEOs rode Wall Street's aging bull market for big windfalls in 2014, a year that's shaping up as a record for executive compensation.

Among the 100 biggest publicly held companies reporting so far, median CEO pay rose 5% to $14.3 million, and among nearly 25% of Standard & Poor's 500 companies, median pay climbed 12% to $11.7 million, according to pay tracker Equilar and compensation consultant Towers Watson.

The pay numbers exclude the massive gains many executives from biotech to burrito makers reaped by cashing out previously awarded stock options and company shares. Among companies reporting so far, CEOs averaged options gains of over $9.6 million, up 72% over 2013, while average gains from exercised options climbed 34% to $10.7 million.

Eye-popping gains came to a variety of CEOs, both long-tenured and recently departed, according to a USA TODAY analysis of proxy filings. Among them:

• Gilead Sciences' John Martin gained $187.4 million from previously awarded stock options and restricted shares last year after scoring $163.7 million in stock and option gains in 2013. Another biotech chief, Regeneron Pharmaceuticals' Leonard Schleifer, gained $98.3 million from stock options.

• CBS' Leslie Moonves realized a $194.8 million gain from stock options and $31.3 million from vested shares — on top of compensation valued at $54.5 million. Moonves could also benefit with a new five-year employment contract that will provide additional stock grants and incentives to stay on as a senior adviser after mid-2019.

• LinkedIn's Jeffrey Weiner gained $178 million from stock options and vested shares — a slight drop from the $179.2 million the former Yahoo executive pocketed from vested shares and options gains in 2013.

• Jarden executive Chairman Martin Franklin gained $110.8 million from vested shares. That's besides compensation, stock, incentives and perks valued at $22.4 million, including $102,000 for financial counseling assistance.

• Discovery Communications' David Zaslav gained $81.2 million from stock options and $26 million from vested shares. Separately, the cable TV programmer valued Zaslav's 2014 compensation package at $156 million, mostly on the value of fresh stock and options awards over a new six-year employment contract.

• Netflix co-founder and CEO Reed Hastings, whose compensation was valued at $11 million, gained $114 million exercising stock options.

• Ameriprise Financial's James Cracchiolo gained more than $80 million from stock options and vested shares.

• Wells Fargo's John Stumpf gained $67 million from vested shares and stock options, on top of compensation valued at $19.3 million.

• Hilton's Christopher Nassetta gained nearly $71 million from vested shares, plus compensation valued at $9.9 million.

"I'm astounded when I see numbers like these,'' says Michael Pryce-Jones, director of corporate governance at pension fund manager CtW Group.

Six years into a bull market, most company stock prices have recovered losses, while others continue to set new highs. The gains are compounded given that stock options were issued at low strike prices following the financial meltdown that pummeled the broad market. And at many companies, executives who are granted restricted shares simply must stick around long enough before they fully vest.

"How much does stock performance have to do with the CEO, and how much is it just market conditions lifting stocks?" asks longtime corporate governance expert Paul Hodgson.

Clearly, given the growing divide between executive pay and that of rank-and-file workers, more and more corporate boards are reining in paychecks and tying performance metrics to stock and options awards.

"If boards have slapped performance conditions on equity awards, it should make it more difficult to earn all of them,'' says Hodgson. "But lots of big option grants were granted without any kind of thought to how much the market was going to recover. All of a sudden, you've got lots of CEOs sitting on a massive amount of wealth. In a lot of cases, it was a little too easy to earn."

Retirement also prompted several CEOs to cash in:

• Ford's Alan Mulally, who retired last August, gained nearly $76 million from vested shares and cashed in stock options. That's on top of compensation valued at $22 million, including $17.8 million in post-retirement benefits.

• Qualcomm's Paul Jacobs, who stepped down as chief executive last March, gained $85 million from cashed-in stock options and vested shares. That's on top of a $45 million restricted stock grant after transitioning to executive chairman. He could have received additional stock grants at the board's discretion.

• LyondellBasell Industries' James Gallogly, who retired this year, gained $55.6 million from stock options and vested shares. William McComb, who resigned from fashion retailer Kate Spade in February 2014, gained $78.4 million from previously awarded stock options — on top of compensation valued at $26.2 million. Former Gap chief executive Glenn Murphy cashed in nearly $90.6 million from previously awarded stock options and restricted shares, on top of $16 million in compensation and other benefits.

Such gains overshadow the fat gains by other execs, such as HanesBrands' Richard Noll.

The head of the underwear marketer cashed in stock options worth $37.5 million and gained another $18.5 million from vested shares. And UnitedHealth Group's Stephen Hemsley gained $61.8 million from vested shares and exercising stock options. (The company says Hemsley, who received compensation valued at $14.8 million, retained all of the shares he acquired last year.)

Herbalife's Michael Johnson gained $41 million from options and vested shares, while Tesoro's Gregory Goff gained $38.7 million from vested shares. And Chipotle Mexican Grill founder and co-CEO Steve Ells pulled in $41.6 million cashing in stock options in addition to compensation valued at $28.9 million.

Executives are likely to post big gains in 2015, given outstanding stock option and stock grants, Hodgson says.

Former Allergan CEO David Pyott is already a big winner. Upon completion of the drug company's $66 billion buyout by Activis last month, Pyott cashed in $534 million in stock options and restricted shares.

And Netflix's Hastings has 236,000 stock options due to expire by Aug. 1, with strike prices between $10.79 to $19.34.

Netflix shares closed at $567.39 Monday.

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