Local Executive Pay Experiences Recovery

Pay for Los Angeles’ top executives largely trended upward last year, with leaders in the sectors of finance, real estate and tech leading the way.
On the Business Journal’s List, which begins on the following page, 84% of chief executive officers featured received increases in pay from 2020 to 2021. Non-chief executives did not fare as well, with 74% reporting bumps in compensation in the same period. .

Ian Larkin, an associate professor of strategy at UCLA’s Anderson School of Management, said that executive pay will likely ramp up given the fact that large companies have moved out of the Covid-19 pandemic’s initial financial impacts.

“Now that a lot of companies are emerging from the pandemic, they are actually seeing pretty good profits, and in a lot of industries they’re saying, ‘Okay, the CEO successfully helped us navigate out of a pandemic, let’s give him or her a big raise,’” Larkin said.

Finance

One chief executive that experienced a hefty increase in compensation was Michael Arougheti, the chief executive of Century City-based global alternative investment manager Ares Management Arougheti ranked No. 1 on the list of chief executive officers, bringing in $70.8 million in total company compensation, a whopping 870% increase from the previous year.

Arougheti’s colleagues, who account for three spots in the non-executive list, did not raise all experience. Ares co-founders David Kaplan and Bennett Rosenthal both took 59% cuts to their pay, while Chief Financial Officer Michael McFerran experienced a 150% increase.

Ares posted $559 million in revenue in the first quarter of 2022, missing expectations by more than 7%. The company’s stock, however, has risen about 49% in the last two years.
Another finance industry team on the list included executives from B. Riley Financial Inc., based in Sawtelle.

The financial services firm’s most recent earnings report strongly juxtaposed the compensation gains made by its executives. B. Riley’s co-chief executives Thomas Kelleher and Bryant Riley posted compensation increases totaling slightly more than $20 million — about 436% — despite the company’s poor earnings.

In its latest report, B. Riley stated that it had taken hits on all fronts, from net profit margin and operating income to net income and revenue. Specifically, net income was roughly negative $10 million, a more than 70% decrease year over year.
Larkin noted that increases in executive compensation are strongly influenced by the stock market. Stock-based compensation can make up for a significant portion of an executive’s pay. For example, more than half of Riley’s total pay was derived from stock awards.

“CEO pay tends to tie quite closely to the stock market and up until the last couple of months the stock market has been performing incredibly well,” Larkin said. “When companies report what their CEOs and other executives are making, they’re using the current stock price to implicitly [show] the value of those options for restricted stock.”

Real estate

Real estate had a strong presence across both lists and was represented by executives from companies such as KB Home, Alexandria Real Estate Equities Inc., Kilroy Realty Group and Rexford Industrial Realty Inc.

The highest-ranked executive from the industry was Joel Marcus, Alexandria’s executive chairman and founder. Marcus was no. 9 on the non-chief executive list with $12.7 million in compensation.

In a 2022 real estate trends report from PricewaterhouseCoopers, the network of firms said that real estate is back with a vengeance after working through the pandemic-induced pause in mid-2020.
“Investment cash, domestic and foreign, is surging into US real estate. “Several factors are driving this demand, including low interest rates and attractive returns relative to risk,” the report said.
Most of the real estate executives on the list experienced raises in pay.

Tech companies compete

Larkin said that one reason that there is a tendency to see increases in the same sector is that companies use compensation consultants to help determine pay packages.
“Those consultants benchmark a package against competitors’ packages,” Larkin said. “So, if one CEO gets a big raise, his fellow CEOs in the industry will often get something similar very quickly. This can lead to spirals in executive compensation as firms try to pay near the top for their industry. This happens in tech, media and banking in particular.”

Leading the way for tech executives on the list was Snap Inc., the parent company of Snapchat. The Santa Monica company had five entries across the lists, the most of any company.

Jared Grusd, Snapchat’s former chief strategy officer, was No. 1 on the non-executive list, with $26.9 million in total compensation. Grusd is now the chief strategy officer of Chime, a San Francisco-based fintech company. Grusd and the other four Snapchat executives on the list either experienced cuts or no changes to their compensation. Senior Vice President of Engineering Jerry Hunter took the largest pay cut of the Snapchat executives; His salary was reduced by 61% to $10.1 million.

Snap Inc.’s stock has followed suit in the last year, as shares that once traded at about $74 in Oct. 2021 now trading at about $14 a share. Executives at the company warned in the lead-up to Snap’s second quarter earnings report that external economic factors would likely cause the company to miss the lower end of its revenue forecast.

The case of the pay decrease may be an outlier in the tech industry, as Larkin said that industries such as tech and digital media consistently see increases in executive compensation.

Health care

The highest health care entry on the lists came by way of Arrowhead Pharmaceuticals Inc. Chief Executive and President Christopher Anzalone, who is No. 3 on the chief executive list with a 73% increase in compensation.

Anzalone is one of four health care executives in the top 10 of the chief executive list and is followed by Amgen’s Robert Bradway, Molina Healthcare’s Joseph Zubretsky and Puma Biotechnology’s Alan Auerbach.

All of the chief executives received raises in compensation, but Auerbach took the lead by a significant margin, recording a 318% increase in compensation.
“There have been some definite beneficiaries, particularly health care companies, that were nimble and made some good strategic decisions around how to respond to Covid,” Larkin said, noting Pfizer as a company that has found or created opportunities amid the pandemic.