CEO Pay

[endzone_dave]

I think the CEO pay is getting a little hard to stomach. I get my 4% cost of living increase and most of the profit goes to the top dogs. It's even harder to take when a company lays off 5000 people and then gives stock options to the execs. Or when the CEO fails miserably and gets that golden parachute. Oh well, lunch is over, back to working hard to make sure my CEO's stock options are worth even more.

http://www.usatoday.com/money/companies/management/2006-04-09-ceo-compensation-report_x.htm

By Gary Strauss and Barbara Hansen, USA TODAY

Even after a decade of sharply rising CEO pay, 2005 proved a watershed for a select group of executives. Their paydays — or potential paydays — broke $100 million.

Led by Capital One Financial's Richard Fairbank, several corporate chieftains earned nine-figure sums or the prospect of that much.

HOW MUCH ARE CEOs PAID?: CEOs ranked by top pay | Alphabetical list of largest companies

Compensated only by stock options since 1997, Fairbank claimed one of the biggest windfalls among CEOs, exercising 3.6 million options for gains of nearly $250 million. His personal haul exceeded the annual profits of more than 550 Fortune 1000 companies, including Goodyear Tire & Rubber, Reebok and Pier 1.

Fairbank, 55, pulled in $56 million from options in 2004. Capital One says Fairbank had to exercise options last year because they were set to expire. The company also noted its 24.6% annual shareholder returns the past decade.

Lifted by Wall Street's three-year bull market, 14 consecutive quarters of rising corporate earnings, mergers and turnover in the corner office, scores of other CEOs enjoyed less stratospheric but still Olympian pay packages.

Median 2005 pay among chief executives running most of the nation's 100 largest companies soared 25% to $17.9 million, dwarfing the 3.1% average gain by typical American workers, USA TODAY found in its annual analysis of CEO pay.

"Overall, we're still seeing solid cash and bonus payouts," says Ian Singer of pay-tracker eComp Data Services, which compiled data from Securities and Exchange Commission filings for USA TODAY's study. "I don't think that's ever going to change when you're at the jumbo level."

Compensation includes salary, bonus, incentives, stock, stock-option gains and potential returns from fresh option grants. Median gains were bolstered by larger stock grants, long-term incentive pay, supplemental retirement pay and options gains.

Failure also played a role: The golden parachutes for ousted CEOS and huge sign-on packages of their replacements lifted median CEO pay and promised to set benchmarks for future pay packages.

Coming off 2004's 25% jump in big-company CEO pay, the sharp rise in executive compensation perplexes corporate governance experts who expected temperance following scandals at Enron, WorldCom and Tyco, increasing scrutiny by regulators and shareholder activists, and starting this year, new accounting rules requiring expensing of stock options.

"Corporate boards are under more pressure to ensure there's a linkage to performance and shareholder returns, but they'll still be looking for ways to maximize pay packages to stay competitive," says Carol Bowie, head of governance research at proxy adviser Institutional Shareholder Services.

One of 2005's largest windfalls so far among those reported during this proxy season came not to a CEO, but to Omid Kordestani, head of global sales at Internet search engine Google. He exercised stock options for a $287.9 million gain. Neither Kordestani, 42, nor Google responded to calls.

Google CEO Eric Schmidt and co-founders Sergey Brin and Larry Page — who requested in 2004 that their salaries be reduced to $1 and refused 2006 raises — exercised no options. But they own big Google stakes; Brin and Page each own stock worth about $12.5 billion.

Another huge payout came to Analog Devices CEO Jerald Fishman, who cashed out $144.7 million from his deferred compensation plan and made another $4.3 million in salary, bonus and options gains.

Hires, fires = big $$$

Whatever the company size, rising turnover in the corner office could prompt higher pay benchmarks to attract new hires. Employment tracker Challenger Grey & Christmas says 2005 CEO departures doubled to 1,322, vs. 663 in 2004. Through the first quarter of 2006, 337 CEOs were replaced.

Among new CEOs with big pay packages:

• Broadcom's Scott McGregor, hired by the semiconductor maker in January 2005, received $7.7 million in pay and bonus, plus stock options with a potential value of $101.9 million. Broadcom says McGregor's compensation is "competitive, fair and reasonable," citing Broadcom's 46% stock price gain.

• 3M's James McNerney, who replaced Boeing CEO Harry Stonecipher in June, received $25.3 million in Boeing stock to compensate him for losing potential payouts at 3M. His last six months at 3M proved lucrative, too. He got almost $41 million — $8.4 million in compensation and $32.4 million exercising 3M stock options. There was no golden parachute for Stonecipher, forced out after the revelation of an affair with a subordinate. But Stonecipher made $39.5 million, including $11 million in incentive pay and $26.9 million exercising stock options.

• John Mack, who replaced ousted Morgan Stanley chief Philip Purcell in June, pulled in more than $68 million, including $37.8 million in restricted stock and $30 million exercising stock options.

Purcell's golden parachute was valued at about $52 million, including a $44 million bonus.

Morgan Stanley co-president Stephen Crawford, who also left, received a settlement worth $36 million.

Such payouts — whose key provisions are largely negotiated as part of employment contracts — have become boilerplate as corporate boards agree to lucrative retention agreements designed to prevent CEO "flight risk," says Ira Kay of pay consultant Watson Wyatt and author of Myths and Realities of Executive Compensation, due out later this year.

"It's a seller's market, and executives have real market power," Kay says. "Most directors are as obsessed with retaining their CEOs as they are satisfying shareholders. Directors know if they have the right team in place, they have to do whatever they can to retain it."

Most compensation advisers and corporate governance experts doubt a Securities and Exchange Commission proposal requiring boards to provide more clarity, justification and disclosure about pay, perks and supplemental retirement will curb CEO pay. "You'll still see extraordinarily egregious deals going down," says Bowie.

New accounting rules that require companies to expense stock options beginning this year aren't likely to limit new option grants to CEOs, either.

"We'll see fewer options granted to lower and middle management employees, but there'll be no effect on option grants to CEOs," says John England, who advises directors for compensation consultant Towers Perrin. "Most directors still believe options are an important piece of senior management's compensation."

Boards are under more scrutiny from shareholders and regulators. Bowie says shareholders will vote on nearly 150 proposals aimed at making boards more accountable. Measures include director term limits, annual elections and provisions to remove directors receiving less than 50% of votes cast by shareholders.

There are about as many ballot measures regarding directors as are being floated to curb CEO pay. Yet, most resolutions are non-binding and ignored by directors, even those overwhelmingly approved by shareholders. Most companies oppose provisions such as annual director elections, which tend to make boards less insular and beholden to management.

Some reformers believe fundamental changes in the way CEOs are compensated won't occur until corporate directors are held more accountable. "They're not sufficiently dependent on shareholders, who lack real power to remove them from boards," says Harvard University professor Lucian Bebchuk, who decries the lack of connection between pay and performance and is pushing for bylaw changes at several firms.

Increased shareholder activism is putting more pressure on some boards to weigh compensation practices, such as covering CEOs' income taxes, more closely, says Temin & Co. pay consultant Bruce Ellig, author of The Complete Guide to Executive Compensation.

Moreover, some boards have begun acquiescing to investor pressure. Prompted by the Teamsters union, Coca-Cola said it would seek shareholder approval of future executive severance packages. The move comes after the soft-drink giant fitted former CEO Douglas Ivester with a golden parachute worth $119 million after four years and successor Douglas Daft, who lasted three, $36 million in severance.

Other companies are already providing more extensive compensation disclosure to shareholders, and board advisers say there's far more backroom discussion among directors about CEO pay.

"There's a change that outsiders wouldn't see — directors asking about the cost implications, disclosure implications, what could go wrong with a plan that pays too much for performance that isn't justified," says England. "Board members are saying they don't want their reputation besmirched."

Overcompensating?

For now, among many corporate boards, looking to enhance pay for already handsomely compensated CEOs remains the norm.

United Technologies' George David has made nearly $300 million in compensation since he became CEO in 1994, including about $40 million in salary and bonuses and more than $250 million from stock option gains, according to SEC filings. He holds exercisable options valued at $138 million. Directors boosted his salary 42% to $1.7 million in 2005, saying it was his first raise since 1998, and awarded fresh options valued at $24 million.

Directors cited his long tenure, leadership, an Institutional Investor magazine survey ranking him tops among his aerospace and defense electronics industry peers and the company's "exceptional" performance. Most longtime shareholders might not quibble: They've gained about 18% annually under David.

"We can all argue how we value CEOs and if their pay makes sense," says Alan Johnson, a principal in compensation consultant Johnson Associates. "But we chronically overvalue CEOs. Until that's addressed, higher pay will continue."

At poor-performing companies, some boards are ignoring performance guidelines to reward executives. Sun Microsystems, down more than 90% from its 2000 peak, gave CEO Scott McNealy a $1.1 million "discretionary" bonus last year, even though Sun failed to meet income or earnings targets. The board cited a "one-time need" to recognize McNealy's performance. McNealy gained $11.8 million exercising options. Already Sun's largest individual shareholder, McNealy also received fresh options worth $7.6 million.

"There's a point where a board should tell the CEO, 'You have enough to incentivize you,' " says Paul Hodgson, pay analyst for The Corporate Library, a governance watchdog group. "But it's still business as usual at most companies. It's all about keeping up with the Joneses. There's still a disconnect between paying for performance and actually delivering it. There's no shame factor."

[bird_1972]

I couldn't agree more. Stockholders really need to take back control and demand that CEO salaries are reigned in. The sad thing is that as long as a company is creating shareholder value often times, they don't care how much the CEO is making or how little those under him/her are.

[AlexRS]

hmmm

on one hand CEO calaries do seem unnecessarily high...

on the other hand, everything starts at the top... CEO is the guy that can single handedly make or break a company.

Still, any position of power will get out of whack if unchecked.

[AlexRS]

Surely taking from the rich and giving to the poor won't work... already tried that in mother russia a little while ago...

[endzone_dave]

I think one of the biggest problems this has created is the truism that your biggest raise will be when you change jobs. If you know you won't be at the same company in 5 years, why kill yourself. Instead of that standard 4% raise, make it 3%-7%, based on performance. People might care more then.

[endzone_dave]

Surely taking from the rich and giving to the poor won't work... already tried that in mother russia a little while ago...

The feudal system was shown not to work either.

[rincewind]

Surely taking from the rich and giving to the poor won't work... already tried that in mother russia a little while ago...

The feudal system was shown not to work either.

But capitialism seems to be working. So if it ain't broke....

right?

[stevenaa]

Where I work we are stack ranked for performance against our peers. Our merit increase, bonus and stock awards are calculated accordingly. I get more goodies than everyone I out perform. Just as it should be. As for the CEO pay. It is what the market will bear. Capitalism at it's finest.

[AlexRS]

But capitialism seems to be working. So if it ain't broke....

right?

It seems there are many ways of implementing the same idea.

Japan, for example.

[AlexRS]

Where I work we are stack ranked for performance against our peers. Our merit increase, bonus and stock awards are calculated accordingly. I get more goodies than everyone I out perform. Just as it should be. As for the CEO pay. It is what the market will bear. Capitalism at it's finest.

The system works well when people do not perform their own evaluations...

[rincewind]

It seems there are many ways of implementing the same idea.

Japan, for example.

This is just such a weird subject for me. I have worked my way through the ranks of companies where the little man is **** on - plus i almost always side with the little man. But - my dad was a high ranking offical for a major company, so i saw what he went through; the stress, travel, and the overall knowledge that so much depended on his every decision.

So in a way i feel the bottom feeder's are getting screwed - and then on the other hand i understand why the big guy's get paid the way they do.

Of course this assumes the big guy's are pulling their weight and not just screwing the little guys a la Enron.

[China]

Business group: Public companies shouldn’t have to compare CEO and worker pay

Here’s one financial figure some big U.S. companies would rather keep secret: how much more their chief executive makes than the typical worker.

Now a group backed by 81 major companies — including McDonald’s, Lowe’s, General Dynamics, American Airlines, IBM and General Mills — is lobbying against new rules that would force disclosure of that comparison.

The lobbying effort began more than a year ago. It involved some of the biggest names in corporate America and meetings with members of both parties on the House Financial Services Committee and Senate banking committee.

The companies and their Republican allies in Congress call comparisons between the chief and everyone else in the company “useless.”

But some Democrats and investors say the information should be issued to highlight the growing income disparity in the United States. They add that opponents of disclosure merely want to hide the outrageous scale of executive pay packages.

On Wednesday, a House committee approved a bill that would repeal the disclosure requirement.

Disclosing such comparisons “can mislead or confuse investors,” said Rep. Nan A.S. Hayworth (R-N.Y.), who filed the bill to repeal the disclosure. “It creates heat but sheds no light.”

She also said the calculation of the ratio would be a burden for companies, especially those with global operations.

The committee vote was largely along partisan lines: Twenty-nine Republicans and four Democrats supported repeal; 21 Democrats opposed it.

“The real reason House Republicans want to keep the typical worker’s pay secret is that it may embarrass some companies to reveal that they pay their CEO in the range of 400 times what they pay their typical worker,” said Sen. Robert Menendez (D-N.J.), who added the requirement to the financial regulatory overhaul bill that passed last year.

Click on the link for the full article

[Burgold]

This is a tougher one in some respects because the market should decide what a CEO is worth. Now, I have no problem with the CEO or President making gobs of money if the company is doing spectacularly. If you're creating great growth, profit, and managing debt well you should be doing great. On the other hand, if your strategies are driving your business into the ground, then the captain should go down with the ship and not be the only guy who gets a lifeboat.

I don't really think we should create a legislative solution, the government should not decide who's worth what, but the mindset of corporate America is so short sighted and destructive far too often.

[TD_washingtonredskins]

I think one of the biggest problems this has created is the truism that your biggest raise will be when you change jobs. If you know you won't be at the same company in 5 years, why kill yourself. Instead of that standard 4% raise, make it 3%-7%, based on performance. People might care more then.

Great point.

I don't really have an issue with CEOs making what they do. I have to imagine that, in almost every case, they have worked very hard to get where they are and are extremely qualified. What the nickel and dime raises at lower levels does do is have today's employees constantly looking around for other opportunities. I've worked at 2 companies since college. The largest organic raise I got was my first one after one year (still in the heart of the economic bubble of the 1990s/early 2000s) when I got 10%. Other than that, they have been more in line with 4-6%. When I switched companies 5 years ago, I got a 23% raise. I realize that there is a limit to how many times you can play that card, but it's something that should be addressed.

[HOF44]

I don't really think we should create a legislative solution, the government should not decide who's worth what, but the mindset of corporate America is so short sighted and destructive far too often.

To many CEO's now are driven by the latest quarter results. They don't care if they head the company off a cliff if they can get the next few quarters profits up at any expense, if it doesn't work out they have their golden parachute. To be fair to them it's how they are evaluated and compensated. That is what has to change.

[Duckus]

Its all a scam.

How decides a CEO salary?

The board of a company.

Who sits on the board of a company? Other CEOs and "players" in the game.

You raise my salary. I will raise your salary. And up and up and up and up and up we go.

[Bang]

Surely taking from the rich and giving to the poor won't work... already tried that in mother russia a little while ago...

Cutting off their heads does.

~Bang

[HOF44]

Cutting off their heads does.

~Bang

No kidding, look at the benefits the French workers get now!

[zoony]

Being CEO and Chairman of the Board is a direct conflict of interest. I'm not sure why it is legal

[ixcuincle]

Wondering how I can get a cushy CEO job like that. Must be the life. And once they have no need for you, hefty severance packages. Where do I sign?

[mardi gras skin]

Here’s one financial figure some big U.S. companies would rather keep secret: how much more their chief executive makes than the typical worker.

What would make this more interesting is if I knew the total number of average workers per chief executive. Has this number changed? If the CEO of McDonalds is employing 10x more workers than he did in 1990 and his salary has gone up 10x more than the average worker, I would think that's about right.

A guy flipping burgers is still only responsible for flipping burgers. But the CEO's responsibility has increased 10 fold.

[zoony]

What would make this more interesting is if I knew the total number of average workers per chief executive. Has this number changed? If the CEO of McDonalds is employing 10x more workers than he did in 1990 and his salary has gone up 10x more than the average worker, I would think that's about right.

A guy flipping burgers is still only responsible for flipping burgers. But the CEO's responsibility has increased 10 fold.

The correct way to look at it would be as a % of profits.

You won't like what you see.

[TD_washingtonredskins]

Wondering how I can get a cushy CEO job like that. Must be the life. And once they have no need for you, hefty severance packages. Where do I sign?

That goes back to my post...in some ways I consider it a lifetime achievement award. If they were that easy to get, more people would have them. So, those who ascend to those positions probably do deserve to be compensated pretty well.

[zoony]

That goes back to my post...in some ways I consider it a lifetime achievement award. If they were that easy to get, more people would have them. So, those who ascend to those positions probably do deserve to be compensated pretty well.

Most people who ascend the ranks of corporate America do so by being more Machiavellian than the guy next to them, or by privelege handed down by their parents. Anyone who thinks otherwise is incredibly naive

...

[Destino]

Being CEO and Chairman of the Board is a direct conflict of interest. I'm not sure why it is legal

Wall St owns Washington. Have you noticed that despite the constant fighting over economic policy that democratic and republican presidents have the same economists in power? Average income or the middle and lower class shrinks. Average time off per week shrinks. Average vacation time shrinks. Retirement age rises. ....All while pay at the top sky rockets.

The more this continues the more radical US politics will become.