Average CEO pay in Minnesota is back above $1 million.

After falling for two consecutive years and holding flat in 2010, median total pay for Minnesota's 100 highest-paid CEOs jumped by 26 percent in 2011 to $1.19 million, hitting seven digits for the first time since 2007.

Stock options and restricted stock tend to drive the headline-grabbing paydays of chief executives. But the Star Tribune's 2012 Executive Compensation Report also shows that CEOs had reasons to smile about their cash compensation -- salaries and bonuses. Seventy-one of the top 100 CEOs got a salary bump in 2011. The median raise: 4.6 percent.

Overall cash compensation -- salary plus bonus -- rose for the second consecutive year. Median cash compensation for the 100 highest-paid CEOs was up 8.5 percent to $768,749 -- the highest level since 2007.

The higher compensation reflects improved results and healthier stock prices at these companies, despite a still-slow economy.

"In 2009-10, executive pay went down because companies didn't meet goals during the recession,'' said Don Lindner, executive compensation practice leader for WorldatWork, based in Scottsdale, Ariz. The membership organization tracks salary trends at more than 2,200 U.S. companies.

Now, in general, companies are performing better. So it's no surprise CEO pay is going up. "Things are working the way they ought to,'' Lindner said.

The Great Recession and an anemic recovery hobbled corporate profits and stock prices, pushing down CEO compensation for nearly three years. Median CEO pay remains more than $300,000 below where it was in 2007, but some observers pointed to the rebound as evidence that companies are getting healthier.

"Good news for the 1 percent," said V. John Ella, a Minneapolis attorney who specializes in executive compensation. "Hopefully, this portends the beginning of a true economic recovery for all."

Robert Kennedy, a professor in the department of ethics and business at the University of St. Thomas' Opus School of Business, said he agrees that -- after a decade's worth of new regulations -- CEO pay is more aligned with company performance. But employees at many of those companies have seen their earnings erode.

"It's not surprising, but a little disappointing, that pay for CEOs has gone up but not pay for regular employees,'' Kennedy said. "I think that can't continue forever. But it certainly is what we've seen in the last few years.''

Lower on the corporate food chain, average salary increases for salaried workers in the Midwest rose about 2.8 percent in 2011, compared with 2.5 percent in 2010, according to WorldatWork.

Nationally in 2011, salaries for officer-level employees rose just 2.8 percent, the firm reported. And among all the companies responding, 7 to 10 percent reported salary budgets that remained effectively frozen in 2011, depending on the job category. That's down from 20 percent in 2010 and 43 percent in 2009 -- the trough of the Great Recession.

Does the boost in CEO pay in 2011 suggest that rank-and-filers can expect a bigger raise? Not likely. There's no indication companies are playing post-recession catch-up, WorldatWork reports.

"There are very few [employers] reporting average increases above 4.1 percent," said the firm, which noted that employee raises in recent years are among the smallest it's seen in 37 years.

A stock sea change

For the first time in our survey, vesting shares of restricted stock surpassed gains from stock options as the biggest contributor to what's called "equity-based" compensation. Unlike stock options -- which can become worthless if shares don't hit a trigger price by a certain date -- restricted shares are a straightforward transfer of company stock. The executive becomes vested in the shares after meeting time and/or performance-based restrictions.

Stock options, a staple of the 1990s bull market, came under intense scrutiny amid high-profile corporate scandals such as those at Tyco and Enron. Critics argued that options gave CEOs too much incentive to boost the company's stock price in the short term, possibly putting long-term performance at risk.

The 2002 Sarbanes-Oxley Act, subsequent accounting changes that make stock options more expensive for companies, and new "say-on-pay'' shareholder votes have tempered their use.

"Stock options are so 1990s/early 2000s," said Ella. "Restricted stock is just so much cleaner.''

The shift has been profound. In 1999, the last full year of the 1990s bull market, gains from stock options accounted for 70 percent of total compensation for Minnesota's highest-paid CEOs. In 2011, option gains contributed just 20 percent of total compensation.

Meanwhile, vesting shares of restricted stock accounted for 31 percent of total pay, or $92 million last year. As recently as 2009, vesting shares contributed just 10 percent of total pay.

"By employing a larger component of cash and restricted stock, I think boards are saying, 'We're not going to hide what we're doing here: We're paying for results and we're not playing games,''' Ella said.


There are several ways to measure executive compensation, some of which use estimated values of new stock grants.

However, since 1997 the Star Tribune has used a "cash-value" recognition method that counts all dollars received in the reporting year, including any gains on the exercise of previously issued stock options or restricted shares.

We don't count grants of new stock awards in calculating total pay for two reasons: The reported dollar value is only an estimate required for accounting purposes; and the person typically won't receive any cash value from such awards for years.

The Wall Street Journal reported in its 2012 executive CEO pay survey that total pay rose 2.8 percent to $10.3 million among the 248 CEOs it reviewed. The Journal changed its methodology in 2010 to include salary, bonus and long-term incentives awarded for the year, including stock and stock options valued at the time of the grant.

GMI Ratings, formerly called the Corporate Library, also monitors CEO pay. In its April survey, GMI found that total median pay for CEOs of about 800 firms in the Russell 3000 index rose 15 percent to $5.8 million. The organization surveys many more large-capitalization companies, where compensation tends to be higher.

Top of the list

The biggest chunk of change for this year's CEOs came from salary and bonus payments (43 percent), followed by restricted stock (31 percent), stock options (20 percent) and "other" compensation (5.8 percent).

The highest-paid CEO in our survey, Stephen Hemsley at UnitedHealth Group, tops our list for the third consecutive year, with total pay of $48 million in 2011.

Hemsley's outsized paydays for the past three years ($48.8 million in 2010 and $101.9 million in 2009) are all driven by one-time gains from stock options he was granted 10 years ago. That was a period when boards were far more generous in bestowing stock options overall -- and particularly so at UnitedHealth Group.

Hemsley's stock option gains of $28.8 million in 2011 account for nearly half of the $60 million in total stock gains realized by all 100 CEOs on this year's list. Hemsley also got a $4.9 million bonus for 2011, a year when total annual return to shareholders at the health care giant exceeded 42 percent.

Payday highlights

Highest salary: Gregg Steinhafel, Target Corp., $1.5 million.

Lowest salary: Michael Reger, Northern Oil & Gas Inc., zero. (Under Reger's pay plan, he takes no salary and is compensated primarily through incentive stock grants.)

Largest bonus: Ameriprise Financial CEO James Cracchiolo, $11 million. He's had the biggest bonus in our annual survey for the past three years.

Smallest bonus: Canterbury Holdings CEO Randy Sampson, $16,081. All told, 82 CEOs got a bonus in 2011, down from 84 in 2010.

Biggest gain from stock options: Hemsley, UnitedHealth Group, $28.8 million. Hemsley has held that title for three consecutive years. Hemsley still holds hundreds of thousands of options, so he will likely appear high on our list in coming years.

Largest gain from vesting of restricted stock: Bahram Akradi, Life Time Fitness, $13.5 million.

Overall, gains from exercised stock options among the Minnesota CEOs dropped 41 percent in 2011, to $60.4 million.

Much of that total is the result of one executive: UnitedHealth's Hemsley, who exercised $28.8 million in 2011.

But excluding Hemsley from the year-over-over comparison, stock option gains for the group dropped by 46 percent, to $31.5 million. Twenty-nine executives exercised options in 2011, the same number who did so in 2010.

Gains on stock options and vesting shares of restricted stock typically boost executives into the highest-paid ranks, and 2011 was no exception.

Five of the top 10 CEOs got there by exercising options. Besides top-ranked Hemsley, option exercisers included Pentair CEO Randall Hogan (No. 6); Polaris CEO Scott Wine (No. 4); Jim Prokopanko of Mosaic Co. (No. 7), and General Mills chief Ken Powell (No. 9).

All 10 of the highest-paid CEOs reported gains from restricted stock that vested in 2011. The biggest gain belonged to Life Time's Akradi, who got $13.5 million from vesting shares, placing him at the No. 3 spot.

Forty-five executives got gains from the vesting of restricted stock awards, compared with 42 a year ago.

Here's another measure: Fifty-three Minnesota executives took home $1 million or more in total 2011 pay. That contrasts with our record year of 2006, when 66 CEOs did so.

Female CEOs

Four female CEOs made the 2011 list, down from six the year before.

Sally Smith, CEO at Buffalo Wild Wings, ranked highest at No. 19 with $4.1 million in total pay. Smith, who was ranked No. 34 a year ago, becomes the first female CEO in our survey to crack the top 20.

Cheryl Beranek of Clearfield Inc. ranked No. 56 with $938,000 this year, up from No. 94 last year.

Brittany McKinney, new CEO at Analysts International, came in at No. 75 this year, with total pay of $453,000.

Kathleen Iverson, CEO of Cyber-Optics Corp., ranked No. 78, with total pay of $432,000.

oslund@startribune.com • 612-673-7206 • pkennedy@startribune.com • 612-673-7926