Before the stock increase, many executives were working for substantially below-market wages. The Associated Press recently performed an in-depth analysis of standard and Poor’s 500 index, tracking the compensation for all CEOs representing companies in that list.
The analysis reviewed CEO compensation from 2008 through 2010, and found that rebounding stock prices have created the possibility for a major payout for top executives which have been relying heavily on stock options for compensation during the recent recession.
One trend spotted during the AP analysis was that many CEOs were paid in stock options in early 2009, at a time when stocks were at a 12-year low, providing for substantial growth opportunity in the future. At the time, however, many CEOs were faced with stock options from 2008 that were in fact lower than their original estimates.
In 2010 the markets have largely recovered and in some cases the increase was as large as a ten-fold jump in value. In the auto industry, Alan Mulally’s pay stood as a prime example. Ford granted Mulally 5 million stock options with an estimated value of $5 million in March 2009, as derived from a unique formula. At the time of Mulally’s 2009 stock assignment Ford stock was trading at $1.96, which has since increased to a value over six times that amount – putting a value of $48 million on those stock options.
The AP also pointed out that Mulally’s 2008 options – then valued at $9 million – are now worth over $20 million. In the same year, both Alan Mulally and then-Chrysler CEO Robert Nardelli accepted $1 annual salaries due to the dire circumstances facing their companies. GM’s executives may also potentially cash in on stock options in the future, but since the automaker is not yet publicly traded, the gains will likely not be as high.
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