Hartford Business Journal

www.HartfordBusiness.com • May 13, 2019 • Hartford Business Journal 13 terpreted and not particularly useful to investors or the general public. One potential point of confusion is that CEO compensation, while it usually includes salary and cash bonuses, also counts stock awards and other deferred income awarded in a given year that the executive doesn't receive right away, and, depending on how the company performs or other factors, may never earn in full. Another gray area, he said, is that ratios don't account for companies with entirely different workforces (like Google vs. Walmart). Varying methodologies for calculating compensation and other fac- tors can also make it tough to compare companies. Reilly said he thinks a more useful measure is what a well-paid CEO is accomplishing for investors. "If a board truly feels the CEO is worth his or her salt, then why should they be viewed any different from a successful (and highly paid) athlete?" Reilly said. "Lebron changes you from terrible to great." However, he admits research has been mixed on whether higher com- pensation can be cleanly linked to bet- ter CEO performance. It's a question that's "remarkably hard" to answer, he said. And he agrees with other aca- demics who say the way CEO compen- sation is determined — by boards of directors that typically use an outside consultant — is not always efficient. In general, CEOs have too much influ- ence over their boards, he said. In addition, a number of economists have said a key driver of rising CEO pay over the decades boils down to corporate boards not wanting to think their CEOs aren't in the upper half of their class, and setting pay packages at or above median peer levels. It's been coined the "Lake Wobegon effect." Despite his criticisms of pay ratios, Reilly still perceives some upside to their disclosure. "It's disciplining the market a little bit," he said. "To the extent this is increasing transparency and gets the right conversations started about making sure that pay is closely tied to performance, then this is a good thing." David Cadden, a business professor at Quinnipiac, agrees the ratios are likely to be influencing board behavior somewhat, but he says don't forget the employees. "I think it may have an impact on a lot of employees who are taking a look and saying 'why is this guy getting 235 times what I'm being paid?' " Cadden said. "I think, in an era of increasing appreciation of income inequality, people do begin to see it." Tax the rich Meanwhile, executive compensation does play into some of the populist sentiment on display in this state's and nation's politics. In Connecticut, as lawmakers try to figure out how to close a projected $3-billion-plus deficit over the next two fiscal years, progressive Demo- crats have called for increasing taxes on the wealthy, while Republicans, the business community and even Gov. Ned Lamont say that will make Con- necticut less competitive. "In a time when individuals and companies are more mobile than ever, increasing taxes on capital gains would send a loud and clear message that Connecticut is bad for business," David Lehman, commissioner of the Depart- ment of Economic and Community Development, testified during a recent public hearing at the Capitol, where lawmakers were weighing a proposal to tack on a 2 percent surcharge to Con- necticut's capital gains tax. A number of people who testified in favor argued the state should expand the proposal to also increase levies on dividends and interest income. Among them was Merrill Gay, executive director of the Connecticut Early Childhood Alliance, a Hartford nonprofit focused on health, safety and economic security of children. Gay said he's worried about potential state cuts to early childhood programs. "At a time when we are short on money, it makes sense to turn to the folks who have the most, especially the folks who have just gotten a huge tax break from the federal government," Gay said. CEO pay ratios Here are CEO pay ratios at companies either based in or with a major presence in Greater Hartford. CEO Median pay CEO employee ratio Company CEO compensation compensation (to 1) CVS Health Larry Merlo $21,953,040 $35,529 618 Cigna David Cordani $18,944,045 $63,526 298 Stanley Black & Decker James Loree $13,580,324 $47,861 284 United Technologies Gregory Hayes $18,418,315 $71,799 257 SS&C Technologies William C. Stone $15,862,121 $91,791 173 Travelers Cos. Alan D. Schnitzer $14,660,092 $95,238 154 Eversource Energy James J. Judge $14,925,381 $129,401 115 Barnes Group Patrick J. Dempsey $6,789,894 $62,798 108 Source: HBJ research of U.S. Securities and Exchange Commission filings. THE FUTURE OF ADVERTISING IN CONNECTICUT IS LOOKING UP. 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