The search for a new CEO presents Target Corp. with a tricky paradox.

In recent years, shareholders have grown more agitated over the big compensation packages that CEOs of giant companies typically receive. Target itself nearly lost a say-on-pay vote last year, with only 52 percent of share­holders backing its policies.

But to attract the right person, analysts think Target may well have to offer its next leader an even better package than ousted CEO Gregg Steinhafel received. Many observers are hoping for an outsider who can breathe new energy into the retailing giant, which has struggled with declining U.S. sales, a botched launch into Canada and a high-profile data theft just before Christmas.

“When you have to do a turnaround, or you have a company that has issues, it can be more expensive to bring in a new CEO,” said Hillary Sale, a law professor at Washington University in St. Louis. “They have more leverage in those moments.”

Overall, CEO pay dropped in 2013 in Minnesota. A Star Tribune analysis shows that median CEO compensation around the state fell 16 percent in 2013 to $1.026 million, compared with $1.22 million in 2012.

But companies that bring in new leadership to address challenging situations face pressure to get the best talent in place. Often that talent comes from outside, and it costs a premium.

Brian Yarbrough, an analyst with Edward Jones, said Wall Street will be “very disappointed” if Target does not hire an outsider. “But any time you go outside,” he said, “you’re going to have to pay more than for an internal candidate — that’s a given.”

In order to lure Hubert Joly in 2012, Richfield-based Best Buy offered a total package that turned out to be worth $21.2 million, compared with the $7.1 million the ousted Brian Dunn was paid his final full year. The Plymouth company Proto Labs, which is trying to accelerate growth dramatically, hired an outside CEO, Victoria Holt, at nearly twice the salary of her predecessor.

Internal CEO hires aren’t usually able to demand the same premium. Steinhafel, a Target veteran who lost his job as CEO this spring, was hired from within and earned a total of $9.9 million his first full year in the job. His predecessor, Robert Ulrich, earned $13.8 million in his last year in the job.

The same was true at 3M, where CEO Inge Thulin, a longtime executive of the company, earned a total of $10.8 million his first year, compared with the $14.1 million earned by his predecessor, George Buckley, in his final year. Both figures include the value of long-term equity awards when granted, not when exercised.

But even with executive pay under scrutiny amid a larger discussion of inequality, a new CEO plucked from outside a company can demand a more generous pay package.

“It’s expensive because you’re looking for the very best. They’re probably working for someone else, they’re high-profile, and they already have a really good pay package,” said Don Lindner, an executive compensation expert at ­WorldatWork, a nonprofit human resources association.

Outside candidates, particularly the small pool of people qualified to take over a Fortune 500 company, must leave behind stock options, restricted stock and other deferred compensation when they switch jobs, Lindner said. The hiring firm must replace what the candidate would lose by making the leap, offer a competitive salary and, when the company is struggling, reward the new CEO for taking on the risks of a fix-it job.

“You may also have to provide something, maybe a mega-grant long-term to make it very worthwhile if it gets turned around,” said Lindner, referring to companies in general. “There’s kind of a risk premium.”

Smaller companies face the same issue on a different scale.

Proto Labs has been a growth company where CEO Brad Cleveland willingly passed the torch to Holt. But Cleveland, who announced in October 2013 that he would retire, had a base salary of $270,000. Holt, a turnaround specialist most recently with Spartech, earns a base salary of $500,000.

In Target’s case, Yarbrough noted that the retailer is still a great brand and doesn’t need a wholesale overhaul. Rather, it needs to return its focus to home and apparel, which drove its prior success.

“They’ve had some recent hiccups, but they’re definitely fixable,” he said.

Target launched a search for a new CEO is early May after it ousted Steinhafel. It has not put a timetable on finding a new leader and has said it is looking inside and outside the company. The firm Korn Ferry is assisting Target in the search. Target declined to comment for this story.

An added challenge for Target in finding a new CEO is the fact that other retailers such as J.C. Penney, Dollar General, American Eagle Outfitters and Kohl’s also are in the market for new leadership.

“There’s definitely competition out there,” Yarbrough added. “That being said, I think Target is a pretty coveted job.”

In the past year, Target has retooled its executive compensation plan, linking it more closely to performance, after shareholders objected to Steinhafel’s high level of pay compared with his peers, especially given Target’s declining stock performance. The tweaks satisfied some shareholders, which was reflected in the company’s better say-on-pay vote this year, which received 78 percent support vs. 52 percent the year before.


Say on Pay

In early July, a group of normally quiet institutional investors including Vanguard, BlackRock and Calvert Investments sent a letter to the boards of 1,000 of the largest companies in the United States, asking for a formal policy of engagement between directors and shareholders.

“The heart of that is the desire to have a real conversation about executive pay, which just seems to keep growing, regardless overall of real performance,” said Sale, the Washington University law professor. “The dis­connect between what CEOs are paid and what workers are paid has gotten larger, and I do think there’s increasing concern about that.”

The Star Tribune’s list of highest paid CEOs reflects a disparity even within the ranks of top leadership. The 10 highest paid CEOs accounted for $218 million, or 54 percent, of the total $400 million paid to all 100 chief executives.

But shareholders have demonstrated that they will support expensive CEOs who are effective. Best Buy’s investors in 2013 gave 83 percent approval to the company’s executive pay, a reflection of their confidence in Joly and the progress he demonstrated. And this year, investors gave the company even higher marks with 98 percent approval in the annual say-on-pay vote.

Even though a major theme of economic discussion in 2014 has been inequality, thanks in part to Thomas Piketty’s much-discussed “Capital in the 21st Century,” shareholders are not primarily champions of social justice, said V. John Ella, an attorney at Jackson Lewis in Minneapolis.

“They want the right person,” said Ella, speaking of shareholders in general. “They’re not super-concerned with whether they get a $5 million bonus.”

While shareholder engagement has become a priority for many boards, they will not push for executives to be paid less unless the company fails to perform, he said.

“Piketty has struck a nerve, and I think that inequality is something that people are paying attention to,” Ella said. “But I don’t think it’s going to go away.”


Top of the list

For the second consecutive year, the highest-paid CEO in our survey is James Cracchiolo of Ameriprise Financial. His total pay doubled to $92 million from $46.3 million in 2012. Both his bonus of $10.9 million and his $76 million gain from stock options were the largest in their respective categories. Shareholders of the big financial services and insurance firm got a total return on investment of 88 percent.

Stephen Hemsley at United­Health Group ranks second with $28 million in total pay, down from $34.7 million in 2012.


Payday highlights

Highest salary: This one is a three-way tie, with former Target Corp. CEO Gregg Steinhafel, TCF Financial CEO William Cooper and new Supervalu CEO Sam Duncan each getting salaries of $1.5 million.

Lowest salary: Brian Kletscher, CEO of Highwater Ethanol LLC, got $121,000.

Largest bonus: Cracchiolo once again fetched the largest bonus at $10.89 million. He has had the top bonus in our survey the past five years.

Smallest bonus: Bradley Slye of Electro-Sensors Inc. got a bonus of $8,162. All told, 77 CEOs got a bonus, down from 78 in 2012.

Biggest gain from stock options: Cracchiolo exercised $76 million in options last year to claim the No. 1 spot. Hemsley of UnitedHealth Group was second with $9.48 million in options gains. Claude Jordan, former CEO of Arctic Cat, placed third with $8.8 million in stock gains.

Stock options represented the single biggest slice of CEO compensation in 2013, accounting for 38 cents of every $1 of CEO pay. But the windfall went just to the 27 CEOs who exercised options.

Largest gains from vesting of restricted stock: Hemsley of UnitedHealth Group received $14 million from vesting shares of restricted stock. A year ago, he topped this category with $15 million in restricted stock. U.S. Bancorp CEO Richard Davis got $9.2 million in restricted shares. Steinhafel took home $8.8 million.

Forty-eight executives got gains from the vesting of restricted stock awards, compared with 51 a year ago.

Overall, gains from exercised stock options among the Minnesota CEOs rose slightly to $153 million in 2013 from $151 million in 2012.


Female CEOs

Six female CEOs made the 2013 list, the same as last year.

• Sally Smith, CEO at Buffalo Wild Wings, ranked highest at No. 21 with $5.58 million in total pay. Smith ranked No. 30 a year ago with $3.5 million.

• Shelly Ibach of Select Comfort ranked No. 44 in this year’s list with $1.34 million in total pay. She joined the list at No. 42 with $2.1 million in total pay a year ago.

• Cheryl Beranek of fiber-optic connections maker Clearfield Inc. ranked No. 46 on this year’s list at $1.28 million.

• LuAnn Via, CEO of women’s clothier Christopher & Banks, joined our list at No. 54 with total 2013 pay of $846,000.

• Kathleen Iverson, CEO of Cyber-Optics Corp., ranked No. 82 with total pay of $334,000 in 2013. She retired in January.

• Kathleen Skarvan, CEO of Electromed, joined the list at No. 98 with total pay of $132,000.