Sustainable Finance Newsletter-A Last Hurrah for 'Most Overpaid'

By Ross Kerber

Nov 15 (Reuters) - A nagging concern about CEO pay is that however much corporate directors declare they only want to reward performance, executives often do better than their investors. The gap contributes to income inequality and frustrates many shareholders.

One of the steadiest measures of pay misalignment has been an annual report from the activist shareholder group As You Sow and partners. They've given me an early look at what could be the last of their widely followed "100 Most Overpaid CEOs" reports, reviewed in this week's main story below.

You'll find links to other sustainable-finance topics as well including the end of the Hollywood actors' strike, and the "troubling tradeoff" facing the Biden administration as it aims to cut greenhouse gas emissions but also boost fuel shipments to allies. Please connect with me on LinkedIn where I welcome comments and feedback. If you have a news tip, potential content, or general thoughts feel free to email me at ross.kerber@thomsonreuters.com.

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A last hurrah for the "Most Overpaid" CEO compensation study After a decade of publishing the influential "100 Most Overpaid CEOs" report, its authors are hitting pause and declaring a basic lesson: claims that CEOs should be highly rewarded often don't stand up.

Many compensation committees say they're only trying to reward executive performance. But the yearly study of S&P 500 CEO pay from activist shareholder group As You Sow and partners including HIP Investor has been a steady reminder that shareholders don't always get what they pay for. The report ranks 100 CEOs as overpaid based on criteria including shareholder returns, critical shareholder pay votes and the ratio of CEO to worker pay. Usually published in the first quarter, because of a funding change an abridged version covering 2023 pay disclosures is due out today that may mark the end of the series.

Rosanna Landis Weaver, the main author of the study, said she is disheartened by some of the trends she has found. In the first list published in February of 2015, the average pay of the 10 most overpaid CEOs was $56 million; this year the average was $88 million. From the first report through Sept. 30, the total shareholder return of the 10 most overpaid as a group lagged the average S&P 500 company by 2 percentage points on an annualized basis.

But Weaver said she also has come to appreciate that many companies - more than half the S&P 500 -- never appeared on the "Overpaid CEOs" list. She said that undermines the "everyone is doing it" justification that boards often give for the awards.

"There are greedy bad actors who dominate the news cycle, but there are also CEOs who appreciate that less extreme inequality is actually good for business," she said.

Paul Herman, CEO of HIP Investor, a sustainability-focused ratings and investment company, pointed to the case of Warner Bros Discovery. Its long-serving CEO David Zaslav was the only CEO to be among the top 25 "most overpaid" in all 10 years of the publication. Zaslav, who has overseen several significant mergers, received a total of $803 million over that span, according to Herman, while the company's total annualized shareholder return over the 10 year period ended Sept 30 was a negative 12.9%.

Herman said such cases can signal to investors to avoid a stock. He called the overall trends seen in the studies "both frustrating and vindicating" and said it doesn't take big pay packages to attract top leaders.

"Boards need to take Psychology 101. If you're going to have one person run the organization, people will always compete for it," he said. "You don't need to overpay to get a great CEO." Other takeaways include that certain industries like entertainment tend to be well-represented on the annual list, as do companies whose CEOs are insulated from shareholder pressure such as through multiple share classes or staggered boards.

Warner Bros Discovery declined to comment on the report. According to its most recent proxy statement, Zaslav's pay decreased to $39.3 million in 2022 from $246.6 million the prior year. (The company said at the time much of that pay was not guaranteed.)

On May 8 only 51% of Warner Bros Discovery shareholder votes cast were in favor of its executive compensation. A wider majority approved the board recommendation to hold such advisory votes annually rather than every three years, which should give investors more influence over compensation.

Company News In a potential setback for iPhone maker Apple, an adviser to Europe's top court said an EU tribunal made legal errors in the company's favor and should review the case again, with $14 billion in tax payments at stake.

With the offshore industry battered by inflation and supply-chain delays, Denmark's Orsted said its finance and operations chiefs were stepping down after the developer reported big losses.

Once relegated to the "accounting dustbin," $15 billion worth of tax benefits for Chevron will be unlocked by its mega-takeover of Hess, according to the company and tax experts.

On my radar Predictions about oil demand growth face a wider split after the International Energy Agency said it expects a sharper slowdown, while OPEC stood by expectations for China-led growth.

A reminder that my sharp colleague Sharon Kimathi plans a daily version of her Sustainable Switch newsletter during the upcoming United Nations COP28 climate summit to be held Nov. 30-Dec. 12 in Dubai. You can sign up for her newsletter here.

(Reporting by Ross Kerber; Editing by David Gregorio)