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How We Analyzed Executive Pay

ProPublica and The Washington Post wanted to see what impact, if any, the 162(m) limit on deducting executive compensation has had on America’s biggest companies, which generally set the example for Corporate America.

We began with the approach that professor Steven Balsam of Temple University’s Fox School of Business took in a 2012 study for the Economic Policy Institute. He calculated deductible and non-deductible executive compensation for more than 7,000 companies for the year 2010.

We looked at a narrower universe: the 40 members of today’s Standard & Poor’s Nifty Fifty — the 50 S&P 500 companies with the highest stock market value — that reported executive compensation in 1992, the year before the deduction limit took effect.

We asked S&P Global Market Intelligence to add up three categories subject to the limit — salary, bonus and restricted stock that vests over time. S&P separately added all other compensation categories, such as stock options and incentive-based pay, that are fully deductible.

Making the 1992 to 2014 comparison work required some modifications:

  • For 1992, S&P recalculated the value of stock options by using an options-valuation formula rather than the numbers companies reported. That is consistent with the 2014 method and makes the values comparable.
  • One category of 2014 compensation — the buildup of value in retirement accounts — is not included because the amounts weren’t disclosed in 1992.
  • The 2014 numbers omit chief financial officers because they were exempted from the deductibility limit in 2007.

Finally, our numbers don’t include executives’ eventual profits on stock options; we count the value of options when granted, not when executives exercise them.

Our results show that 2014 compensation subject to the deductibility limit grew by about 650 percent per executive from the 1992 level. During this period, the Consumer Price Index rose only about 70 percent.

The Inexorable Rise of Executive Pay

Congress tried to curb soaring pay for corporate executives with a 1993 law capping the tax deduction companies can take for certain types of compensation. The limit, $1 million per top officer, has had little effect. At 40 of today’s biggest companies, 76 percent is pay-for-performance, which isn’t subject to the limit. See the related story.

Company Execs With Compensation Over the $1 Million Deduction Cap Compensation Subject to Deduction Cap * Tax-Deductible Compensation **
1992 2014 1992 2014 1992 2014
3M 1 4 $4,491,606 $10,177,733 $4,009,080 $18,657,910
Allergan (Watson Pharma) 0 5 $378,310 $8,369,007 $86,185 $96,246,361
Altria (Phillip Morris) 5 4 $9,133,134 $4,579,528 $29,432,456 $16,222,352
Amgen 0 4 $2,064,081 $9,278,589 $7,123,445 $20,636,867
Apple 2 5 $5,665,633 $55,147,745 $0 $56,000,304
AT&T (SBC) 2 4 $4,814,550 $24,227,057 $6,859,222 $22,642,993
Bank of America (NationsBank) 5 4 $18,610,000 $5,008,097 $417,976 $42,823,631
Berkshire Hathaway 0 2 $338,000 $564,011 $192,000 -
Boeing 1 4 $4,169,730 $19,039,980 $2,063,974 $30,181,787
Bristol-Myers Squibb 3 4 $6,190,397 $5,747,206 $5,728,045 $40,271,509
Chevron 1 4 $5,042,417 $6,985,915 $2,503,300 $32,862,726
Cisco Systems 0 4 $1,098,836 $11,292,664 $3,417 $45,990,468
Citigroup 4 4 $10,735,177 $6,101,813 $45,254,316 $47,420,785
Coca-Cola 2 4 $7,581,623 $5,841,846 $5,070,952 $34,005,079
Comcast 0 4 $2,837,785 $22,961,787 $3,785,850 $64,433,882
CVS Health 1 4 $3,921,000 $11,369,052 $1,356,949 $32,082,705
Disney 2 5 $14,731,107 $12,309,280 $0 $81,828,574
ExxonMobil (Exxon) 3 4 $6,750,166 $7,256,437 $3,744,090 $56,838,840
General Electric 6 4 $25,342,917 $31,269,849 $6,882,215 $23,363,407
Home Depot 2 5 $6,612,642 $4,489,652 $4,511,429 $26,461,870
IBM 1 4 $4,551,245 $9,594,169 $3,324,189 $29,758,586
Intel 1 4 $4,548,800 $11,796,200 $1,997,069 $22,259,600
Johnson & Johnson 3 4 $4,862,201 $17,434,797 $757,354 $30,122,813
JPMorgan Chase (Chemical Bank) 4 4 $8,548,077 $10,901,470 $3,249,521 $65,125,000
McDonald’s 2 4 $5,169,100 $6,165,984 $7,427,627 $8,477,462
Medtronic 1 4 $3,240,015 $49,908,399 $3,329,975 $20,463,150
Merck 5 4 $8,849,093 $5,234,131 $13,747,212 $38,081,020
Microsoft 0 4 $1,993,236 $11,095,785 $12,943 $40,728,176
Nike 1 4 $3,598,038 $11,153,411 $1,591,705 $20,553,960
Oracle 1 5 $4,889,006 $5,022,453 $12,206,249 $220,347,850
Pepsico 2 4 $5,209,412 $4,752,805 $8,080,653 $35,456,935
Pfizer 1 4 $3,973,500 $6,687,599 $4,710,107 $30,632,933
Procter & Gamble 4 4 $8,042,700 $15,895,264 $1,105,100 $39,970,356
Schlumberger 1 4 $3,622,362 $10,912,714 $5,622,181 $22,045,939
United Technologies 4 5 $6,266,288 $6,712,183 $5,755,212 $38,078,415
UnitedHealth 1 5 $2,838,278 $18,757,859 $987,209 $27,749,650
Verizon (Bell Atlantic) 1 4 $3,468,400 $15,389,858 $2,570,433 $22,214,488
Walgreens 1 4 $3,372,640 $3,076,324 $875,776 $18,890,949
Walmart 0 5 $2,919,615 $19,810,123 $1,996,858 $47,834,394
Wells Fargo (Norwest) 1 5 $5,005,720 $14,321,044 $1,195,811 $44,100,097

() = Company name in 1992

* Includes salary, bonus and restricted stock awards that are not pay-for-performance

** Includes stock options, incentive pay and bonuses and restricted stock awards that meet pay-for-performance requirements

Sources: 1992 data, S&P Global Market Intelligence; 2014 data, Equilar

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