(A clarification has been made to this article. See end for details.)
The word “outlier” was invented to describe things like the top entry on this week’s list of the highest-paid executives employed by public companies in Arkansas.
Marc Lore — pronounced “Lorry” — was awarded more than $242 million worth of stock when the online retailer he helped found, Jet.com of Hoboken, New Jersey, was sold to Wal-Mart Stores Inc. in August 2016 for $3.3 billion. Lore then joined Wal-Mart as an executive vice president to run the Bentonville discount chain’s most ambitious assault on the competitive threat that is Amazon, adding another million or so to his total compensation.
Lore’s total compensation of $243.9 million, in fact, was a mere $4.2 million more than the total of the 101 other named executive officers reported by 20 public companies in the state.
Companies typically list the compensation for five officers, but some report fewer and some more. Arkansas Business’ list breaks down total compensation into salary, the calculated value of stock and stock options awarded, bonuses or other cash performance pay, plus any other compensation reported to the U.S. Securities & Exchange Commission.
Any value realized from exercising stock options is noted in the list but is not included in total compensation.
The only other executive besides Lore to pull in nine figures in a single year during the two decades Arkansas Business has been collecting compensation data from the publicly traded companies headquartered in the state was former Alltel CEO Scott T. Ford. He was paid more than $146 million in 2007, the year his company was sold to private equity investors.
(A Wal-Mart spokesman pointed out that Lore's restricted stock units, which were reported to the SEC as part of his compensation for the fiscal year that ended Jan. 31, will vest over five years subject to certain conditions. "Absent this grant of RSUs, Mr. Lore's fiscal 2017 total compensation ... would have been approximately $7.6 million," the company also reported to the SEC.)
Lore’s compensation was, according to research by Equilar Inc., more than twice that of the highest paid CEO of a publicly traded company, Tom Rutledge of Charter Communications of Stamford Connecticut. He was paid $98 million on revenue of $29 billion.
That the top spot on the Arkansas Business list is occupied by a Wal-Mart executive is not an outlier. In the past decade, Ford is the only executive of another company to rank No. 1 on the list. (See table.) Wal-Mart is the largest company in the world ranked by revenue, which was $485.9 billion in the fiscal year that ended Jan. 31 of this year.
The CEO of Wal-Mart is typically the highest paid executive in the state, and Doug McMillon, CEO since February 2014, is No. 2 on the list with a more typical total of $22.4 million.
The next two spots are also filled with Wal-Mart executives: EVP David Cheesewright, $12.6 million, and EVP Gregory S. Foran, $11.6 million. Wal-Mart’s fifth named executive officer, CFO M. Brett Biggs, is No. 9, $6.4 million.
Three executives of Tyson Foods Inc. of Springdale are also in the top 10:
- No. 5 Donnie Smith, who was replaced as CEO at the end of 2016, $11.5 million. (His successor as CEO, Tom Hayes, came in at No. 18, with compensation of $4.6 million as president of the company before his promotion.)
- No. 6 John H. Tyson, chairman of the board, $9.6 million. Tyson also exercised stock options that netted $29.5 million during the fiscal year that ended Oct. 1, 2016.
- No. 8 Donnie King, president of Tyson’s North American operations, $8 million.
Between Tyson and King at No. 7 is Roger W. Jenkins, CEO of Murphy Oil Corp. of El Dorado. His pay package totaled $8.5 million. He was the highest paid executive of a company that reported a net loss last year as the petroleum industry continues to recover from a downturn that began in late 2014.
George G. Gleason II, chairman and CEO of Bank of the Ozarks of Little Rock, moved into the top 10 for the first time with total compensation of $6.2 million.
Politics of Pay
As is typical, less than 20 percent of aggregate compensation came in the form of base salary. (Lore’s salary and other compensation were omitted from that calculation.) The move toward performance-based compensation reflects the preference of proxy advisory firms like Institutional Shareholder Services Inc. of New York.
Salaries for Arkansas executives whose job titles were the same in 2015 and 2016 tended to see raises of 2 to 5 percent, although some — like Gleason — received no increase in base salary at all. Earlier this month, the executive pay consultants at Pearl Meyer & Partners LLC of New York released results from 276 companies projecting salary increases of about 3 percent for CEOs and their direct reports in 2018.
That survey also found that companies are not ready for a major new disclosure requirement that will take effect with their 2018 proxy statements: the disclosure of the CEO’s compensation compared with the median of all other employees.
This pay ratio disclosure requirement is part of the Dodd-Frank Wall Street Reform & Consumer Protection Act of 2010. Pearl Meyer found that 44 percent expect the CEO’s salary to be 100 times the median or less, while 56 percent expect the ratio to be higher. In 4 percent of the responses, the companies expect the CEO’s salary to be 400 times the median or more.
Three quarters of the executives that responded to Pearl Meyer’s survey said there had been no internal discussions of how to communicate the ratio internally and externally.
Say on Pay
While the CEO pay ratio requirement has yet to kick in, another Dodd-Frank provision — the requirement that stockholders get to have a “say on pay” — seems to have had an effect since the first votes were taken six years ago.
The Semler Brossy consulting firm in Los Angeles reported this summer that compensation schemes averaged 91.7 percent approval from voting stockholders this year, the highest since voting began. And at only 1.4 percent of companies did the votes actually fail.
Semler Brossy, in a follow-up report, concluded that “a clear model of acceptable executive pay in public companies has emerged, and companies and investors have an unprecedented level of communication about executive pay.”
Among the things that “are no longer supportable without significant rationale” are “uncapped use of the corporate aircraft,” Semler Brossy concluded.
“Instead, we primarily inhabit a space where CEO pay is of ‘low concern’ if below a specific multiple of peer median, where long-term performance is measured across rolling three-year periods, and where future performance dictates the degree to which at least 50% of an executive’s annual equity award is earned.”
(Clarification, Oct. 30, 2017: Lore's stock award will vest over five years, although it was reported to the SEC as compensation for the most recently completed fiscal year.)
A Decade of Highest Paid Executives
The highest-paid public company executive in Arkansas for each of the past 10 years
|2016||Marc Lore||EVP||Wal-Mart Stores Inc.||$273.9 million|
|2015||C. Douglas McMillon||CEO||Wal-Mart Stores Inc.||$19.8 million|
|2014||Gregory S. Foran||EVP||Wal-Mart Stores Inc.||$19.5 million|
|2013||C. Douglas McMillon||EVP||Wal-Mart Stores Inc.||$25.6 million|
|2012||Michael T. Duke||CEO||Wal-Mart Stores Inc.||$20.7 million|
|2011||Michael T. Duke||CEO||Wal-Mart Stores Inc.||$18.3 million|
|2010||Michael T. Duke||CEO||Wal-Mart Stores Inc.||$18.7 million|
|2009||Michael T. Duke||CEO||Wal-Mart Stores Inc.||$19.4 million|
|2008||H. Lee Scott||CEO||Wal-Mart Stores Inc.||$31.2 million|
|2007||Scott T. Ford||CEO||Alltel Corp.||$146.4 million|
Source: Annual proxy statements filed with the U.S. Securities & Exchange Commission