By Joann S. Lublin 

A substantial part of American CEOs' pay is now tied to performance. But that doesn't mean their compensation follows their results in lock step.

The Wall Street Journal's annual pay survey looked at compensation for 300 CEOs and the returns the chiefs delivered to their shareholders. Broadly speaking, CEOs did well when their investors did. All 10 of the CEOs posting the best shareholder returns were paid more than they had been a year earlier, and all but two of the 10 worst performers got pay cuts.

The results come as pressure from investors has prompted companies to tie a greater percentage of their top executives' pay to measurable results.

But there were anomalous results, too, highlighting the fact that some boards' ideas of success don't always line up with what pays off for investors. In addition, long-term commitments like pensions and multiyear stock grants can drive pay higher even if annual performance falters.

Only one of the 10 highest paid CEOs ranked among the top 10% by investor performance in the survey, conducted by the consultancy Hay Group. That was Brent Saunders, chief of Actavis PLC, which has since renamed itself Allergan PLC.

Meanwhile two of the 10 best paid CEOs-- Viacom Inc.'s Philippe Dauman and General Electric Co.'s Jeff Immelt--got higher compensation even though the value of their shareholders' investments in the company fell.

Compensation for Mr. Dauman, a regular in the Top 10, rose 19% to $44.3 million, putting him at No. 7 on the list. Total shareholder return at the media giant, meanwhile, came in at a negative 6.6%, ranking Viacom 263. His compensation, like that of most CEOs, includes a mix of near-term and longer-term rewards. Last year, his salary rose by $371,000 to $3.9 million, his bonus for the year rose by $3.1 million to $20 million, and his annual stock-option award rose by about $1.5 million to $7.5 million.

Viacom owns cable channels such as Nickelodeon, MTV and Comedy Central. Its profit slipped 0.2% in 2014, and it has faced ratings troubles at its biggest networks. The company's directors praised Mr. Dauman in the proxy, however, for delivering record per-share earnings and for more qualitative accomplishments, including "directing significant investment in content creation."

The company also pointed to a record of strong performance since Mr. Dauman took command in 2006. Viacom has delivered average annual shareholder returns of 18.9% over the past three years.

CEO pay and investor returns can diverge for a number of reasons. Performance metrics could be linked to company-specific goals like subscriber additions or industrial revenue instead of share-price appreciation, for example. Or share-price targets could be benchmarked against industry peers, which in theory can highlight better leadership when outside forces weigh on an entire sector.

Companies face heightened risks of conflict with their investors these days when pay is out of line with performance.

The 2010 Dodd-Frank financial law mandates regular nonbinding shareholder votes on pay practices, and activist investors are paying closer attention to compensation. A pending SEC rule will require firms companies to disclose how well pay for top executives tracks investor return.

Some firms appear to be doing well on that score. Rite Aid Corp. CEO John Standley delivered the highest shareholder return in this year's survey, at 292%. His pay rose by 6.5% to $8.3 million. Gary Kelly, CEO of Southwest Airlines, delivered a 126% shareholder return and was paid just $5 million, up 23.9% from a year earlier.

Compensation for executives at the top of the investor-return rankings generally rose. One exception was John Hammergren, head of medical-products company McKesson Corp., whose pay slumped 49.9% to $25.9 million, while investors reaped a return of 64.6%.

The decline mainly reflected a drop in the value of Mr. Hammergren's pension. Heeding investor complaints, he agreed last year to cut his record $159 million pension benefit by $45 million, and McKesson revamped its incentive compensation program for top executives.

"Since last year, we have continued to enhance our executive-compensation program in response to shareholder feedback," said Kris Fortner, a McKesson spokesman.

Overall, total compensation for the CEOs in the Journal's survey climbed by a median of 13.5% to about $13.6 million, nearly two-thirds of which was linked to performance. That is well above the 2.2% average rise in wages and salaries for U.S. private-sector employees overall last year, according to the Labor Department. But shareholders did even better, with a median return including share-price appreciation and dividends for companies in the survey of 16.6%.

Liberty Global PLC's Michael Fries topped the best-paid list with compensation of about $112.2 million, up 139.4% from a year earlier. Shareholders booked a solid return of 13.3%.

"Our compensation plans are structured to heavily weight long-term equity performance, which has averaged 35% a year over the last five years," a Liberty Global spokesman said.

The survey covers CEOs at 300 large companies with at least $9.1 billion in revenue and a proxy statement filed by April 30. Those parameters left out Discovery Communications Inc.--with 2014 revenue of $6.3 billion--where CEO David Zaslav got more than $156 million, much of it for signing a new employment agreement.

The Journal's survey measures pay granted in the most recent fiscal year. That includes salary and annual cash bonus, plus equity and other performance awards, some of which will pay off only if future performance targets are met. The numbers have kept on growing.

"Say on pay really hasn't impacted the absolute size of CEO pay," said Irv Becker, U.S. leader of board solutions for Hay Group. "But it has impacted the design to be more performance based." So when corporate performance weakens, he said, "we should see an appropriate" CEO-pay decline.

That doesn't always happen. Among the worst performers in this year's survey was Weatherford International PLC. The oil-services company, struggling to navigate the collapse in the price of crude, delivered a negative 26.1% total shareholder return last year and has announced plans to lay off about 15% of its workforce by the end of June. Weatherford's average annual shareholder return over the past three years was a negative 7.9%, compared with a positive 20.4% for the S&P 500.

Meanwhile, compensation for CEO Bernard Duroc-Danner rose 13.4% to about $14.9 million, in part due to higher cash incentive pay for 2014.

Karen David-Green, Weatherford's vice president of investor relations, explained the payout, saying the company's share price outperformed industry peers like Schlumberger Ltd. and Halliburton Co. through late July, when the oil-price downturn began. She also said the firm met most performance objectives last year, including cost cuts and rates of preventable vehicle injuries.

But the company missed its targets for free cash flow, Ms. David-Green said. Also, between late July and year-end, its stock fell 52%, compared with 23% for Schlumberger and 46% for Halliburton.

Ms. David-Green said Weatherford's board views performance over the long term, "which is not always captured through one-year [total shareholder return] in a cyclical market."

General Electric's shareholder return was a negative 6.7%. Yet Mr. Immelt's pay rose 88% to $37.2 million. His package reflects the view of GE directors that he exhibited strong leadership and performance, such as double-digit profit growth for GE's industrial segment and $11 billion returned to shareholders through dividends and stock buybacks, GE spokesman Seth Martin said.

Mr. Martin also said Mr. Immelt's pay would have fallen 2% without an $18.4 million rise in his pension's value.

Some of the pension gain reflected the way accounting rules turn lower interest rates and longer lifespans into higher pension values. But about $8.8 million reflected a gain of nearly $490,000 a year in pension checks Mr. Immelt can expect to pocket as his pay has risen and he approaches 60, the age when top GE executives may collect full pensions.

International Business Machines Corp. boosted CEO Virginia Rometty's compensation 38.5% to about $19.3 million, even as the computing giant posted a shareholder return of negative 12.4% and lower profit and revenue last year.

A year ago, all the senior management team members skipped their annual bonuses after IBM's disappointing 2013 performance. Ms. Rometty did get a $3.6 million bonus for her 2014 performance, representing 90% of her target payout.

"This takes into account the shortfall in financial results relative to expectations balanced against the substantial strategic actions taken to reposition the company," IBM said in its proxy statement. Her overall package reflects "the board's strong confidence in Ms. Rometty's ongoing leadership."

IBM declined further comment.

Theo Francis contributed to this article.

Write to Joann S. Lublin at joann.lublin@wsj.com

Access Investor Kit for General Electric Co.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US3696041033

Access Investor Kit for Viacom, Inc.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US92553P1021

Access Investor Kit for Viacom, Inc.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US92553P2011

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

General Electric (NYSE:GE)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more General Electric Charts.
General Electric (NYSE:GE)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more General Electric Charts.