AT&T Inc.'s Randall Stephenson held the title of highest-paid chief executive in Dallas-Fort Worth for two straight years. Stephenson pulled down almost $58 million in his time at the top, guiding the telecommunications giant through a lucrative merger with Time Warner.
But his reign ended with this year’s ranking of public company CEOs.
The chief executives of three companies with revenue under $2 billion soared into the top five, including a new No. 1. Claiming this year's title is At Home Group Inc.’s Lewis "Lee" Bird III, who has guided the growing Plano-based home decor chain that's challenging the notion that brick-and-mortar stores have seen better days.
Stephenson didn’t fall far, though, slipping only one spot to No. 2 with a pay package totaling $29.1 million in 2018.
‘Home’ is where the shares are
Bird took home just over $43 million in 2018, including stock options valued at $41.5 million. The incentives give him the chance to buy At Home shares at an agreed-upon price over the next seven years.
The sum dwarfs Bird's previous payout of $9.5 million and is part of At Home's strategy to hold on to him. Chief financial officer Judd Nystrom resigned last year after a five-year run that saw the company triple in size. Earlier this year, Nystrom joined Austin-based home decor company NBG Home.
In 2015, Bird rebranded the Garden Ridge chain into At Home. It has burst onto the scene since, expanding from 60 stores and $364 million in revenue to 180 stores and $1.2 billion in revenue last year. This year, At Home opened its 200th store in July, and it boasts a long-term goal of 600 U.S. stores.
Long-term incentives like Bird's helped lift median CEO pay nearly 29% between 2017 and 2018, according to an analysis by Houston-based compensation and management consulting firm Longnecker & Associates for The Dallas Morning News. It found that the value of stock and option awards jumped 20.3% on average.
“It is a win-win situation for most CEOs across the board,” said Cynthia Devers, a business professor at Texas A&M who researches executive pay.
Most executives saw their pay rise last year. Of the 100 highest-paid CEOs in Dallas-Fort Worth, executives made a median of $5.8 million in 2018, up from $4.5 million in 2017.
A U.S. economy that continues to add jobs, coupled with a healthy stock market and tax reform legislation that awarded windfalls to companies, creates an environment welcoming to significant pay bumps.
“When the economy is doing well, people aren’t going to scrutinize CEO pay as often,” Devers said. “If their portfolio is doing well, they won’t get involved in pay issues.”
Small firms, large checkbooks
At Home wasn’t the only smaller company to pay its CEO big bucks in 2018.
Home loan servicer Mr. Cooper Group Inc. paid chief executive Jay Bray $25.1 million, a 340% increase over his $5.7 million payout in 2017.
The Coppell-based company included $18.5 million in equity grants — shares Bray can sell over five years. Nationstar Mortgage and WMIH Corp. merged last summer to create Mr. Cooper Group. The large grant rewards Bray’s leadership during and after the deal, the company said.
In Plano, Tyler Technologies Inc. reported revenue just under $1 billion in 2018. The software firm’s CEO, Lynn Moore Jr., received a package worth $19.8 million last year. The breakdown: equity grants totaling almost $10 million and option awards worth $8.9 million.
Size still matters
A key factor driving pay is the size of a company.
When smaller companies raise CEO pay, it’s often with long-term incentives that cost nothing upfront.
“If companies come under competitive or regulatory pressure, cash is highly prized,” said Praveen Kumar, chairperson of the finance department at the University of Houston.
But large CEO incentives don’t guarantee bigger returns for shareholders. At Home’s one-year returns fell 39% despite the significant grant to Bird.
The home goods retailer significantly lowered its earnings forecast for the year in June.
Chinese tariffs and a market requiring large markdowns are eating away at profit margins, Bird said.
Shares of the company peaked above $40 last July but have fallen below $7 a year later. They lost more than half their value on a single day in June. Potential buyers began courting the company in April after it missed fourth-quarter earnings.
And Bird’s stock option award could end up being worth very little.
When the award was decided in June 2018, At Home’s share price sat near $37. The long-term incentive is valuable only when a CEO succeeds in raising the stock price to an agreed-upon level. If the stock remains down, Bird may not be able to cash in.
Bird’s sizable pay package doesn’t align with the company’s poor first-quarter performance, according to some shareholders. Just over half of investors voted down the compensation of At Home’s executives at the firm’s annual meeting in early June.
"Investors need someone to blame, and the CEO getting paid $40 million while still running the company does not make sense to most of them," an investor wrote on Seeking Alpha, a crowd-sourced site covering financial markets.
Texas paychecks
The average compensation of North Texas CEOs — $7.7 million — doesn’t come close to the S&P 5000 average of $14.5 million. At Home’s Bird ranks No. 19 in the country in CEO pay.
Dallas-Fort Worth’s three best-paid CEOs are also the highest earners in Texas. The executives of At Home Group, AT&T and Mr. Cooper Group earned a combined $97 million in 2018. And half of the 10 best-paid executives in the state lead North Texas companies.
John H. Hammergren, former head of McKesson, made the list of top earners for the first time since the nation's largest pharmaceutical distributor officially moved to Irving earlier this year. It began setting the stage for its relocation from California in April 2017, when it opened a campus for U.S. Pharmaceuticals Group, its largest business unit and biggest revenue driver.
Hammergren, who retired in April, made $18.1 million in 2018. Brian Tyler, who took the helm in April, will make $12.6 million in 2019.
Communications company CEOs had the most lucrative pay packages, averaging $12.9 million. AT&T’s Stephenson led this group, followed by Nexstar Media Group Inc.’s Perry Sook, who brought in $14.6 million. Match Group CEO Mandy Ginsberg dragged down the average with her $2.5 million pay package.
Executives of utilities, technology and consumer discretionary companies reported average compensation of $11.5 million and up. Average pay was lowest for firms that sell consumer staples, from dairy products to toilet paper.
Watch the gap
For the second year, public companies had to report the pay difference between their top executive and the median wages paid to workers. The rule was part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
CEOs made 176 times as much as their firm’s median employee in 2018, on average. The ratio has increased as executive pay growth outpaces advances in wages.
Four of five companies in North Texas reported this information. Companies get a pass if they’ve gone public recently, report revenue under $1.07 billion or if U.S. residents own less than half their shares.
The gap is widest at retail companies, where many workers are employed on part-time and seasonal schedules. The pay ratio of Plano-based J.C. Penney Co. Inc. jumped to 1,294-to-1. That's up from 753-to-1 in 2017.
J.C. Penney pointed to two reasons for the increase: the $6 million signing bonus J.C. Penney gave new CEO Jill Soltau and slightly lower median pay for hourly workers.
Experts cautioned against placing too much value in the ratio. The figure can vary considerably because of differences among industries and the methods companies use to determine it.
“From a research perspective, this ratio is a meaningless number,” said Suresh Radhakrishnan, a professor of accounting and corporate governance at the University of Texas at Dallas. “It’s comparing apples to oranges.”
Footnotes & methodology
- McKesson's John Hammergren retired in March 2019; Brian Tyler succeeded him as CEO.
- Fluor's David T. Seaton resigned in May 2019; Carlos Hernandez succeeded him as CEO.
- Celanese's Mark Rohr became executive chairman in April 2019; Lori Ryerkerk succeeded him as CEO.
- Pioneer Natural Resources' Timothy L. Dove retired in Feburary 2019; founder Scott D. Sheffield succeeded him.
- Michaels' Carl S. Rubin departed in February 2019; Mark Cosby succeeded him as interim CEO.
- Comerica's Ralph W. Babb Jr. became executive chairman in April 2019; Curtis C. Farmer succeeded him as CEO.
- Alliance Data's Edward Heffernan left the company in June 2019; Melisa Miller succeeded him as CEO.
- Approach Resources' J. Ross Craft resigned in April 2019; Sergei Krylov succeeded him.
The Dallas Morning News and Longnecker & Associates analyzed pay for the 100 highest-paid CEOs in Dallas-Fort Worth. Change in total direct compensation wasn't calculated for companies whose CEOs changed between 2017 and 2018. Total compensation includes: base salary, bonus, stock awards, option awards, non-equity incentive plan compensation, deferred payment plans and all other compensation.
