CEO Pay: A Lot More Than Meets the Eye?
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What is the episode about and why does CEO pay matter to investors?
Your Money Briefing Money and market stories from The Wall Street Journal. I'm J.R. Whalen in New York. Those million-dollar CEO salaries you read about sometimes aren't what they seem. Sometimes they're actually ten times what they seem. We'll run the numbers in a moment. First, these money headlines. Economic activity expanded at a moderate pace across most of the U.S. this spring, driven in part by a pickup in manufacturing activity despite trade tensions. The strength reported in the manufacturing sector arrives after the Trump administration in March announced plans to institute broad tariffs of 25% on steel and 10% on aluminum products. While some manufacturers expressed optimism in the outlook for the sector, many also noted the new tariffs were creating uncertainty, according to that report.
Rural America doesn't have a jobs problem. Far from it.
How did post‑financial‑crisis rules increase transparency around CEO compensation?
What it has is a housing problem. Fewer homes are being built per household than at any time in U.S. history. And it's even worse in rural communities. Developers in less populated areas can't tap into the economies of scale available in urban centers, making materials and labor more expensive. Rural areas are also seeing their population stagnate or decline as younger people opt out for urban living, adding to the gamble involved in speculative building. The National Association of Home Builders says there were 71,000 single-family homes built in rural areas of the U.S. in 2016 that represents about 10% of all new single-family homes. And actor and director Ben Affleck is putting his summer camp meets plantation-style compound on a rural Georgia island on the market for $8.9 million.
In recent years, Affleck has used the home as a vacation getaway. The property is located on Georgia's Hampton Island Preserve. It's a 4,000-acre island approximately 35 miles south of Savannah. The island is private, and visitors must be granted permission by a resident before accessing it via bridge. The island has an equestrian center and a golf course. This is your Money Briefing from The Wall Street Journal.
How often do S&P 500 companies have to correct CEO pay disclosures?
Welcome back, everybody. Transparency in post-financial crisis corporate America has allowed shareholders and the public to see compensation at the highest level. And while in most cases the disclosures provide a clear window on pay packages, sometimes there are some smudges on the window that require some clarifying and some reissuing of numbers. And Wall Street Journal reporter Tao Francis joins us via Skype to discuss. So Tao, the idea of disclosing CEO pay really took on a new spotlight with the financial crisis about 10 years ago.
That's right. Lawmakers and the public really began to grow concerned in the financial crisis that high CEO pay gave companies and executives an incentive to swing for the fences and to take risks that they might not otherwise take. So the idea really took hold that CEO pay isn't just a matter of equity or fairness or something along those lines, but rather a real risk that investors need to consider.
And what's unusual are occasions when a company reports a CEO's pay and then has to issue a correction. It's often enough not just a rounding error. It's actually a little bit more than that.
I was actually surprised by the frequency with which these large companies that have teams of lawyers and accountants actually had to restate or revise past compensation disclosures. And as you said, sometimes you're talking about $10 million, $3 million, $5 million. These aren't always small sums.
How can numeric or typographical errors create multimillion‑dollar pay revisions?
You know, the headline of your Wall Street Journal story spotlights Laboratory Corporation of America. The originally reported pay for CEO David King was off by about $10 million. How does something like that happen?
So in this case, it wasn't the current year's pay. It was a prior year's pay. It was the pay that was listed this year for what he earned in 2016. Companies have to disclose three years of pay at a time. And in this case, they just got some numbers switched around. It's the sort of thing anybody can do. It's the sort of reason that we all try to proofread our work, but sometimes things slip by anyway.
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Chapters
7 chapters
1
What is the episode about and why does CEO pay matter to investors?
0:00–0:51
2
How did post‑financial‑crisis rules increase transparency around CEO compensation?
0:51–2:07
3
How often do S&P 500 companies have to correct CEO pay disclosures?
2:07–3:35
4
How can numeric or typographical errors create multimillion‑dollar pay revisions?
3:35–4:31
5
What production and publication steps can introduce compensation mistakes?
4:31–5:40
6
Why did Berkshire Hathaway retroactively change Warren Buffett’s reported pay?
5:40–7:43
7
Where can listeners find the Wall Street Journal’s analysis and full stories on pay revisions?
7:43–8:31
Speakers
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