March 25 (Bloomberg) -- Total
compensation for U.S. chief executive officers shrank by 8.6 percent
last year, according to data compiled by Bloomberg BusinessWeek.
offset some cuts in stock awards and options by boosting CEO salaries
and bonuses, the data show.
packages under pressure from President Barack Obama and shareholder
activists, average compensation fell by 8.6 percent to $9.81 million
for the 81 CEOs whose companies’ proxy statements were examined. While
option awards were slashed by 30 percent, cash earnings, including
non-equity incentive rewards, rose 8.3 percent.
king in corner offices because boards acquiesced to CEOs’ desire for
dependable income, according to interviews with 15 compensation
experts. Executives, whose pay packages were typically negotiated in
2008 and early last year, weren’t willing to give up salaries for
long-term, stock-based awards that could decline in value.
economy is reeling, the most stable form of pay isn’t stocks, it’s
cash,” said Sam Pizzigati, an associate fellow at the Institute for
Policy Studies in Washington who has written about executive
compensation and shareholder activism. “In rough times, the surest
thing is cash, and that’s what they went for.”
the direction preferred by the White House.
extent there is more emphasis on cash than stock, that’s unfortunate,”
Kenneth Feinberg, the U.S. special master on executive
compensation, who was appointed by Obama in June 2009. “We’re pushing
the other way.”
trend holds for other
Standard & Poor’s 500 companies, CEO compensation may have fallen
for the third year in a row. The average pay package declined in 2007
and 2008, when it was off roughly 40 percent from its 2000 high of
$14.6 million, according to research by assistant finance professors
Carola Frydman of the Massachusetts Institute of Technology and Dirk
Jenter of Stanford University.
that Bloomberg reviewed include the most complete pay summaries that
companies have ever been required to provide. For the first time, the
Securities and Exchange Commission has mandated that the full value of
stock and option awards appear in proxy statements covering the year
in which they were given. The awards’ value was divided among several
years in the past.
For a look
at how S&P 500 CEOs fared under the new disclosure rules, Bloomberg
compiled data from proxies for companies whose fiscal years ended on
Dec. 31, 2009, and that had been filed as of March 12. For comparison
purposes, only CEOs serving in that capacity in 2008 and 2009 were
Lexmark International Inc., based in Lexington, Kentucky, cited
challenging economic conditions in its proxy as the reason for
freezing salaries. The CEO of Morris Township, New Jersey-based
Honeywell International Inc.,
David Cote, 57, requested that he not be awarded a bonus because
of the recession. Directors agreed -- and his total pay was reduced by
committees also exercised caution to avoid criticism, said
Tim Smith, a senior vice president at Walden Asset Management, a
money manager in Boston.
spotlight of public attention is on companies more than ever,” Smith
financial institutions among the 81 companies cut CEO compensation in
2009 by almost $28.1 million to $176.1 million -- accounting for 37
percent of the overall pay lost. Eleven were banks that received money
from the Troubled Asset Relief Program and had to adhere to federal
guidelines that restricted cash bonuses for top executives.
Vikram Pandit, CEO of New York-based
Citigroup Inc., voluntarily slashed his annual salary to $1 in
February 2009. His package exceeded $38 million in 2008, when the
bank’s stock price fell 77 percent. Pandit, 53, vowed not to take a
raise or receive incentive compensation until Citi -- 27 percent owned
by the U.S. -- returns to profitability.
Charlotte, North Carolina-based Bank of America Corp.,
Kenneth D. Lewis received no cash, bonus or equity compensation in
2009. Lewis, 62, retired on December 31.
Not all TARP
recipients showed restraint. Last August, San Francisco-based Wells
Fargo & Co.’s compensation committee approved upping CEO
John Stumpf’s base salary more than fivefold to $5.6 million, all
but $900,000 of which was awarded in shares that vested over the rest
of the year.
received a total pay package of $21.3 million, 136 percent more than
in 2008. It was boosted because TARP rules made the bank unable to
“reward him appropriately” in other pay categories, said
Melissa Murray, a spokeswoman for the bank.
possible explanation for the decline in overall compensation was
pressure from shareholders, according to
John Keenan, a strategic analyst at the American Federation of
State, County and Municipal Employees union in Washington.
100 resolutions seeking advisory roles on executive compensation were
submitted last year, up from 7 in 2006, Keenan said, and 64 companies
have agreed to give shareholders a say on pay.
resolutions that have passed are typically nonbinding.
policing executive pay with something that has no teeth,” said
Frank Glassner, CEO of San Francisco-based Veritas Executive
Compensation Consultants LLC.
The gain in
cash forms of pay and the decrease in stock and option awards moved
the companies further away from compensation aligned with long-term
performance, according to the data compiled by Bloomberg.
exactly the opposite message that was meant to be imparted by
President Obama, Feinberg and the other preachers from D.C.,” said
Graef Crystal, a pay analyst who examined the data for Bloomberg.
At 43 of the
81 companies, salaries and bonuses increased. Salaries alone rose an
average 8.9 percent.
“That is a
large increase in any year, but few Americans received any raises at
all and many lost their entire income,” Crystal said. “The increase
for CEOs seems a gross insult.”
might have gone up been because boards saw stock- based awards as too
volatile and wanted to offer more stable cash income as a retention
tool, said Paul Sorbera, president of the executive recruiting firm
Alliance Consulting in New York.
options don’t have as much “holding power on executives” as they once
did and some companies felt they had to offer CEOs more cash so
competitors wouldn’t “steal their talent away,” said
Steven Hall, managing director of New York- based Steven Hall &
Partners, an executive compensation consulting company. “Some of these
executives need to be paid $20 million” or they might leave for
awards declined by 30 percent, the biggest drop in any form of
compensation, according to the data. Some boards didn’t want to give
out large option awards because of the potential for
gains that would later make the awards look excessive, according
Kenneth Raskin, a lawyer in the New York office of White & Case
who represents CEOs in pay negotiations.
want the stock price to rise dramatically and in a year seem far too
greedy,” said Ira T. Kay, an independent compensation consultant in
stock awards by 11.7 percent, putting less emphasis on options and
more on stock awards, which compensate a CEO even when a share price
stagnates. For options to pay off, stock prices have to climb.
relative reliance on share awards “misaligned” CEO and shareholder
interests, according to a February
report by the Corporate Library, a shareholder governance research
firm in Portland, Maine.
bonuses -- including what the proxies call “non-equity incentive plan
compensation” -- rose 7.9 percent in 2009 to an average $2.07 million.
Nine of the
81 CEOs took home a bonus in one category or the other, after
receiving none in 2008. They included Columbus, Georgia-based Aflac
Inc.’s Daniel Amos, 58, who was awarded $4.1 million, and Midland,
Michigan-based Dow Chemical Co.’s
Andrew Liveris, 55, who received $4.5 million.
performance goals for long-term awards are being reduced in the
still-uncertain economy, Veritas’s Glassner said.
haven’t raised the bridge,” said Glassner. “They’ve just lowered the
Corning Inc., based in Corning, New York, altered its performance
measurements “given the great uncertainty in accurately forecasting
the impact of the global recession” in order to “alleviate any
unintended shortfalls or windfalls in actual bonus payouts,” the
company said in its
Wendell Weeks, 50, received $4.8 million in an annual incentive
bonus, up from $301,584 in 2008.
Ray Irani, CEO of Los Angeles-based Occidental Petroleum Corp.,
ranked first among the 81 executives with a $31.4 million pay package
in 2009. Irani, 75, stands to get a bigger payday this year -- a $58.5
million cash award from an incentive plan tied to the company’s
return on equity, or earnings divided by book value, a common
measure of performance.
get the payout if Occidental attains a 54 percent cumulative return
over three years, according to the company’s proxy. The company
achieved a 94 percent cumulative rate in 2004 to 2006, in the three
calendar years before the target was set.
compensation committee rewarded Irani in 2009 for continuing “to place
Occidental among the best performers in the oil and gas industry,”
according to the company’s 2010 proxy statement. The board’s focus on
return on equity is meant to encourage “the effective use of capital”
in profitable, long-term investments, the proxy said.
plans gained an average of 15.4 percent or $1.27 million. One reason:
the 8.3 percent rise in salary and bonus drove up the current value of
what companies promised to pay CEOs in retirement, typically
calculated as a percentage of their annual income.
pension values in proxies are mostly book entries, not cash outlays,
they reflect changes in the real amount a CEO would get if he took his
pension in a lump sum.
AT&T Inc. put $8.99 million into CEO
Randall Stephenson’s pension plan, the biggest such contribution.
Under the retirement plan, Stephenson, 49, will get a pension equal to
60 percent of his highest average salary and bonus in three of his
last 10 years at the company. Although he’s not currently eligible for
retirement, his pension is valued at an estimated $31 million today.
McCall Butler, a spokesman for AT&T, said Stephenson’s pension
gain was “an actuarial value, not part of his actual taxable income.”
letter to shareholders last April supporting a say-on- pay
resolution, Carole Lovell, president of an AT&T retiree association,
said that the company’s “executive compensation policies continue to
exhibit all the worst excesses and abuses.” The resolution did not win
In the 81
filings, “all other compensation” -- including perquisites like
private planes, security details and country club memberships --
declined by 23.2 percent.
casualty: Lincoln National Corp. CEO
Dennis Glass, 60, whose “other” pay dropped to $308,463 from $2.26
million. Glass’s 2008 perks included $82,901 for personal use of
aircraft, according to the proxy. His perks in 2009 cost $16,600 for
matching charitable contributions and financial planning, said
Laurel O’Brien, a spokeswoman for the Philadelphia-based insurer.
are backing off on criticism triggers like private planes because
“these kinds of perks just aren’t worth it,” said David Gordon, an
executive compensation consultant at Frederic W. Cook & Co. Inc. in
Los Angeles. “They are a small fraction of overall compensation, but
have the ability to get 50 percent of the attention.”
pay isn’t likely to go away. RiskMetrics, an investor consultant,
counts 180 resolutions concerning executive compensation around the
in Congress that would mandate say-on-pay votes may have led some
activists to “feel the battle has been won,” said Doug Friske, head of
the global executive compensation practice at New York-based Towers
Watson & Co.
passed the measure, which is part of the financial regulation overhaul
bill in the Senate.
Tim White, a
partner with Dallas-based Kaye/Bassman International, an executive
recruiter, ties shareholder pressure to the U.S. recession that began
in 2007 and may now be abating.
difficult times, there is always a clamoring for the fat cats to make
less money,” White said. He predicted executive compensation will rise
as the economy strengthens.
the reporters on this story:
Alexis Leondis in New York at
email@example.com; Jessica Silver-Greenberg in New York or
firstname.lastname@example.org; Tara Kalwarski in New York at or
Updated: March 25, 2010 00:01 EDT