A limp stock market and slack corporate performance in 2015 resulted in a 19-percent drop in average CEO pay at Minnesota’s 84 largest public companies.

Compensation for the state’s highest paid CEO, James Cracchiolo of Minneapolis-based Ameriprise Financial, fell 57 percent to $41.8 million, because he only exercised $18.1 million in stock options. In the previous two years, he made a total of $150 million by cashing in long-held options.

Many executives did not exercise any options in 2015, including UnitedHealth Group’s Stephen Hemsley, who dropped from second on the Star Tribune’s CEO pay list for 2014 to sixth for 2015.

Kevin Henderson, an associate professor of management at the University of St. Thomas, cited the soft economy as a reason why executives exercised fewer options in 2015.

“I think that’s a big reason why a lot of CEOs didn’t cash things in, because the market didn’t do great,” Henderson said.

The Dow Jones industrial average was down 2.2 percent in 2015 after a 7.5-percent increase in 2014. The slow-growth economy, low oil prices and a strong dollar all had an effect.

“That’s obviously going to impact compensation of the top execs when a big portion of the pay is based on the performance of the company and the stock market,” Henderson said.

The CEO pay pressures are true for the nation as a whole. The Wall Street Journal’s executive pay package in April showed that for 300 large publicly traded companies, median pay, including value of long-term equity awards when granted and deferred pay and pension gains, dropped 3.8 percent last year to an average of $10.8 million.

The shift is partly because the formula for CEO pay has changed. Over the years, as CEO pay has skyrocketed, companies have shrunk the percentage of compensation tied to annual salary and increased at-risk portions such as incentive bonuses and long-term equity awards.

Data from Willis Towers Watson, a global management advisory firm, show the approximate mix of CEO pay in 1990 was 40 percent salary, 20 percent annual incentives and 40 percent stock options. By 2014, that mix was 20 percent salary, 20 percent annual incentives and 60 percent a mix of long-term incentives that included options, restricted stock and performance-based share awards.

“Pay does align more with performance, it does move up and down with performance, a lot more than it used to,” said Don Delves, a compensation consultant with Willis Towers Watson.

The thinking behind long-term equity awards is that CEOs will stick to strategy instead of short-term gains because the greatest compensation potential in that system takes the longest to realize.

“That’s actually an area where CEOs, boards of directors and the average Joe agree … that more of the CEO’s pay ratio should be dependent on long-term incentives,” Henderson said.

The Willis Towers Watson methodology counts salary, bonus and the value of options and stock awards when granted. The Star Tribune’s total compensation formula counts the values of options and stock awards when they are realized — a formula that tends to highlight executives who have longer tenures with their companies and have accumulated years worth of long-term equity awards with successive vesting schedules.

Some Minnesota CEOs have even more of their total compensation at risk than the average, according to pay charts in their proxy statements. For example, UnitedHealth’s Hemsley’s salary is 9 percent of his pay. For Medtronic CEO Omar Ishrak, Target CEO Brian Cornell and 3M CEO Inge Thulin, it’s 10 percent. And for Polaris’ Scott Wine, it’s 12 percent.

Cracchiolo’s base salary represents only 5 percent of his total compensation mix in 2015. His lower pay last year reflects two factors: While Ameriprise stock has largely outperformed its peers during the last 10 years, in 2015 Ameriprise had a negative annual return on its stock for only the second year since 2008. Plus, Cracchiolo has fewer options to work with. After a stock option grant of more than 1 million shares in 2009 Ameriprise has adjusted its long-term equity awards toward a mix of options, restricted stock, and performance share awards.

While the pay mix has changed so that executives are accepting more risk, critics point out the relative size of the compensation packages still has increased dramatically since the 1990s.

Meanwhile, Minnesota Department of Employment and Economic Development data show that the average hourly wage for private employees in Minnesota for May was $27.07 per hour (about $56,300 per year), up 5 percent from a year ago.

The AFL/CIO’s Executive Paywatch feature highlights the increasing pay-ratio between CEOs and their workers. The average pay in 2015 of a CEO for an S&P 500 company was $12.4 million last year, which is 335 times more money than the rank-and-file employees make. The gap is slightly less than 2014.

The compensation studies point out that the biggest factor in the pay gap is the long-term equity awards. Most companies only award the stock awards to top executives.

Equity awards are dependent on share prices. At the 56 Minnesota companies where total shareholder return went down during their fiscal years, 30 of those executives saw their total compensation for the year go down.

V. John Ella is a shareholder attorney with Minneapolis-based firm Trepanier MacGillis Battina. Ella, who has negotiated employment contracts for executives, says much of the change in the pay mix of CEOs over last 25 years was driven by tax regulations around executive compensation and attempts to tie executive compensation to corporate performance.

Ella noted that about 45 percent of the executives on the list this year saw their total take-home go down in the last year.

“One could conclude that the system is not entirely rigged,” Ella said. “Executives don’t always win whether the company results are heads or tails. These mixed numbers may be a healthy sign of rational corporate governance in Minnesota when it comes to executive compensation.”

In 2011, the say-on-pay rule that was part of Sarbanes-Oxley legislation went into effect and while shareholders have mostly approved pay packages, it has brought more visibility to executive compensation.

“There is a little bit more scrutiny over CEO pay every year, and an awareness of the optics, which I think is healthy,” Ella said. “Maybe there is enough attention that boards are saying we are not just going to raise your pay every year.”