Among Equilar’s findings:

• In 2008, CEOs at Fortune 100 companies received $348,101 in total other compensation compared to $356,175 in 2007.

• Use of the corporate aircraft by Fortune 100 CEOs rose by 28.9 percent from 2007 to 2008, increasing from $109,743 to $141,477.

• In 2008, 74 percent of Fortune 100 companies reported an increase in pension benefits for their CEO–$10.7 million in 2008 compared to $10.3 million in 2007.

• Median value of nonqualified deferred compensation plan balanced fell from approximately $4.8 million in 2007 to $3.6 million in 2008.

• In 2007, 21.1 percent of Fortune 100 companies reported eliminated perquisites, compared to 29.2 percent in 2008.

In 2009, public backlash led to the decline of many of these perquisites. David Sasaki, associate research manager at Equilar notes that overall perquisites began to decline after the big three automakers used corporate planes to travel to Washington while requesting a taxpayer-funded bailout. “The area that has seen the most scrutiny is tax gross-up payments on perquisites, where companies pay for the taxes incurred from the receipt of a benefit such as personal aircraft usage,” adds Sasaki. “At least 11 Fortune 100 firms have cut this benefit and there are likely more since the data for this report was gathered.”

With new Securities and Exchange Commission disclosure rules in effect for three years, it is now possible to compare data from fiscal years 2007 and 2008. In 2008, 29.2 percent of Fortune 100 companies reported the elimination of certain perquisite programs. These cuts either occurred during 2008 or will occur in the upcoming 2009 fiscal year. According to Equilar, among companies eliminating executive perquisites in 2008 and 2009, tax reimbursements, financial planning, and personal use of corporate aircraft were discontinued most frequently.

The package included $2.3 million of compensation and almost $699.8 million from the vesting of one- quarter of the equity granted as he took the firm public at $31 a share in 2007, said the Corporate Library, which specializes in governance issues. Schwarzman, Blackstone’s founder, was granted $4.7 billion in equity at the time of the offering. Schwarzman, 62, took the world’s largest private equity firm public at the height of the market boom.

His pay package toppled Oracle Corp. CEO Larry Ellison, 64, who fell to second with $557 million, according to the survey. Ellison had $543 million in exercised stock options. His total compensation in 2007 was $193 million, according to the survey.

“Given that the other 75 percent of his $4.7 billion 2007 equity grant will vest in equal installments over the next four years, it is reasonably safe to assume that Schwarzman will remain at the top of highest-paid CEOs list, or close to it, for a few years to come,” the report said.

Seven of the top-paid executives worked for energy companies. Ray Irani of Occidental Petroleum made $222.6 million, John Hess of Hess earned $159.6 million and Michael D Watford of Ultra Petroleum Corp. took in $116.9 million, the report said. Seven of the 10 on the list made more than $100 million last year.

The former CEO of the bailed-out Royal Bank of Scotland Group (RBS), Sir Fred Goodwin, has agreed to forgo about half his pension, which led to public outrage earlier this year, reports The Wall Street Journal.

Goodwin was awarded a annual pension of £703,000, which included credit for ten additional years of work. His normal pension would have been £579,000. Under the new agreement, his pension is approximately £342,500 per year.

Goodwin’s original pension created such ire in Britain that he has avoided being seen publicly, especially after his Edinburgh home was vandalized. Many see him as the cause of RBS’s near-collapse as well as a symbol for the banker excess and greed that led to the financial crisis. Currently, the U.K. government owns 70 percent of RBS.

According to the Hay Group, including the value of stock, stock options, and other long-term incentives, total direct compensation for the CEOs dropped 3.4 percent to a median of $7.56 million. The decline was the first in seven years and only the second drop since the WSJ began tracking CEO pay in 1989.

While median CEO salaries grew 4.5 percent, bonuses fell 10.9 percent as profits decreased by a median 5.8 percent.

CEO compensation decreased more sharply at banks and brokerages. Median annual cash compensation for CEOs in the financial industry fell 43 percent, to $976,000. Total direct compensation fell 14.2 percent, to a median $7.6 million.

“We are at a historic turning point in CEO compensation,” says Charles Elson, head of the Weinberg Center for Corporate Governance at the University of Delaware’s business school.

Critics remain weary as some CEOs still receive perks, despite low earnings.

]]> http://www.directorship.com/ceo-pay-drops-for-the-first-time-in-7-years/feed/ 0 http://www.directorship.com/amex-ceo-earned-363-million-in-2008/ http://www.directorship.com/amex-ceo-earned-363-million-in-2008/#comments Thu, 01 Jan 1970 00:00:00 +0000 Joseph McCafferty http://www.directorship.com/?p=2904

American Express chairman and CEO Kenneth I. Chenault earned salary, perks and stock-based awards valued at $36.3 million in 2008, reports The Wall Street Journal. This compensation includes stock and options valued at $34.1 million in early 2008, when shares were trading around $49. American Express stock closed Tuesday at $12.17.

John Stumpf, president and CEO of Wells Fargo is reported to have received $9 million worth of salary, perks, and stock-based awards. The stocks and options were valued at $7.9 million in early 2008.

Nobuyuki Hirano was voted onto the Morgan Stanley board of directors Tuesday. Hirano is currently a director at MUFG and senior managing director of Bank of Tokyo-Mitsubishi UFJ.

Experts warn that despite the Troubled Assets Relief Program’s (TARP) efforts to curb excessive pay, stock options not worth much now could exponentially increase, resulting in huge payouts for executives.

The Corporate Library believes that TARP money will not be paid back to the government in full until a bank or other recipient is in good financial health. The compensation regulations from ARRA include:

• a ban on incentive compensation that encourages risk taking

• clawback provisions for the top 25 executives

• a ban on golden parachutes for the top 5 executives

• a ban on bonuses, retention awards or other cash or stock incentives of any kind, except for restricted stock that does not vest while TARP money is owed, and that comprises less than one-third of the total amount of annual compensation of the employee receiving the stock (the Act does not define what would be included in annual compensation)

• a waiver for compensation subject to written agreement on or before February 11, 2009

• the introduction of a policy regarding “luxury expenditures”

• the introduction of a “Say on Pay” vote

• a review of prior payments to the top 25 executives to ensure they were not “inconsistent with the purposes of … [ARRA]” and, if so determined, the Act gives the Secretary to the Treasury authority to reimburse the government with respect to this compensation

Paul Hodgson, a senior research associate at The Corporate Library, writes that CEOs will still be overpaid—stocks rising will indicate restoration of value, not a gain. He usesCEO James Wells of SunTrust Banks as an example of practices not consistent with the purposes of ARRA.

According to Hodgson,for2008,James Wells earned just over $1.25 million with no bonus, no vesting of stock and no option profits. At the beginning of the year he was awarded equity with a grant date value of more than $6.8 million which was worth a little over $560,000 on February 17, with the stock option component of this grant worth nothing at all.

While this is somewhat reflective of the collapse in the company’s stock price, the proxy also discloses that the compensation committee has granted–subject to stockholder approval of the plan–25,075 shares of restricted stock, 25,075 shares of performance stock based on relative Total Shareholder Return, and 852,941 stock options with an exercise price of $9.06. This is in addition to the 50,000 shares each of restricted stock and performance stock, and 250,000 stock options already awarded to Wells on February 10th, again at an exercise price of $9.06. These awards pre-date the ARRA regulations by just a single day and are of even greater concern because typical stock option grants to the CEO in the past ranged between 40,000 and 250,000.

Wells had 953,000 outstanding, underwater stock options (not so much underwater as drowning) at the end of 2008, writes Hodgson. The combined 2009 awards would appear to be a repricing in everything but name. Using the company’s own calculations, the “grant date value” of the combined awards is less than half the grant date value of the 2008 awards, but this is not the issue. The issue is that the upside potential of these awards is huge. The highest exercise price for outstanding stock options for Wells is $85.06. If the stock price were to return to that level, the options would be worth over $89 million, with the restricted stock worth $12.8 million.

While such a rebound may seem unlikely, in a period of 10 years it is not impossible. Even if the stock price were to rise to the lowest exercise price of Wells’ outstanding options–$50.50–the options would be worth over $45 million and the restricted stock $7.6 million. While shareholders would clearly benefit from such a return, for most it merely represents restoration of value rather than a gain and such compensation is clearly excessive for a CEO who oversaw the decline in value.

Once financial health is restored, Hodgson implies that we will be faced with the same over-the-top compensation packages that paved the way for risky behavior, leading us to our current economic crisis.

The CEO of Coca-Cola Enterprises got a compensation package valued at $11.9 million in 2008, reports AP. John Brock’s 2008 pay is about $1 million less that in 2007.

The company, not immune to the economic fallout of the past year, booked a loss of $4.39 billion and saw its stock fall 53 percent. Shares have falled another 11 percent since the start of the year, closing yesterday at $10.70.

Brock, who runs the biggest Coke bottler, earned $1.1 million in salary and a $147,344 cash bonus. He also got $219,745 in other compensation, which included personal use of the company plane worth $167,603. The company also paid $46,851 to a defined contribution plan for him.

A report from Pearl Meyer & Partners in collaboration with Directorship magazine, conducted a quick poll, asking board members, executives, and human resources professionals to weigh in on their how their companies make compensation decisions.

Thirty-nine percent of respondents who self-reported their overall executive compensation governance practices as “excellent” expressed different views than other respondents on other topics.

There was little difference in the responses of outside directors and firm employees on topics such as:

• The influence of the Committee, outside advisors and the CEO on the executive pay decision-making process (i.e., whether various constituencies had too much, too little, or an appropriate level of influence).

• Whether the Committee was provided with sufficient context and analysis to support effective decision-making.

• The relative importance of various considerations related to executive pay programs, such as pay-for-performance orientation, retention of executives, and risk/reward relationships.

Still, employees of the firm were more critical than outside directors regarding whether the appropriate time was allocated towards executive pay design, governance, and administrative activities.

Respondents estimated that over the last year, the average compensation committee member spend 25 to 50 hours on committee activities, including meeting preparation. Committee members who said they spent less than 50 hours believed their commitment level was “appropriate,” as opposed to committee members who spent more than 50 hours.

Overall, respondents felt positively about their strucutre (checks and balances, allocation of roles and responsibilties, etc.). The majority of respondents indicated the constituencies involved in executive pay decision-making each provide an appropiate level of input.

A report from Pearl Meyer & Partners in collaboration with Directorship magazine, conducted a quick poll, asking board members, executives, and human resources professionals to weigh in on their how their companies make compensation decisions.

Thirty-nine percent of respondents who self-reported their overall executive compensation governance practices as “excellent” expressed different views than other respondents on other topics.

There was little difference in the responses of outside directors and firm employees on topics such as:

• The influence of the Committee, outside advisors and the CEO on the executive pay decision-making process (i.e., whether various constituencies had too much, too little, or an appropriate level of influence).

• Whether the Committee was provided with sufficient context and analysis to support effective decision-making.

• The relative importance of various considerations related to executive pay programs, such as pay-for-performance orientation, retention of executives, and risk/reward relationships.

Still, employees of the firm were more critical than outside directors regarding whether the appropriate time was allocated towards executive pay design, governance, and administrative activities.

Respondents estimated that over the last year, the average compensation committee member spend 25 to 50 hours on committee activities, including meeting preparation. Committee members who said they spent less than 50 hours believed their commitment level was “appropriate,” as opposed to committee members who spent more than 50 hours.

Overall, respondents felt positively about their strucutre (checks and balances, allocation of roles and responsibilties, etc.). The majority of respondents indicated the constituencies involved in executive pay decision-making each provide an appropiate level of input.

CLICK HERE TO VIEW THE REPORT (pdf).

]]> http://www.directorship.com/the-new-top-ten-issues-in-executive-comp/feed/ 0 http://www.directorship.com/female-ceos-earn-lower-compensation/ http://www.directorship.com/female-ceos-earn-lower-compensation/#comments Thu, 01 Jan 1970 00:00:00 +0000 Joseph McCafferty http://www.directorship.com/?p=2750

A recent survey by The Corporate Library found that while females receive higher base salaries than their male counterparts, when cash bonuses, perks, and stock compensation is factored in, female CEOs only make 85 percent of the pay packages male CEOs bring in.

The median actual compensation for females is $1,746,000 compared to $2,049,000 male pay packages. Females of larger corporations fair worse as their earning power is less than two thirds of male CEOs.

The survey adjusted pay for size, performance, and industry, but none of these factors distinguished the reason for the discrepancies. Tenure did not lend a solution to the differential in pay.

“Perhaps it is the number of female CEOs,” speculated Senior Research Associate Paul Hodgson, co-author of the report. “Less than 3 percent of CEOs were women, so there were nearly 33 times as many male CEOs as there were female CEOs. This is a shockingly low number in any major Western economy, but the small number of women in the sample – only 80 – may be affecting the findings.”

While more than 15 percent of women CEOs lead financial services companies, compared to 12 percent of male CEOs, the distribution of industries for female CEOs was not different enough from male CEOs to have significant or consistent effect, according to the report.

Nearly 75 percent of approximately 350 board members polled during the NACD conference expected increased shareholder communications to be mandated. Both Senator Barack Obama and John McCain have voiced some level of support for say on pay legislation and if Obama is elected, some expect a comprehensive shareholder bill of rights in the first 100 days of an Obama administration.

“Investors are angry. And when they’re angry, they sue somebody,” said Michael Smith, president of AIG Executive Liability. He also noted that institutional investor lawsuits will take longer to resolve and are not often settled out of court.

Where do we go from here? How do we adjust our approach, because the government is in fact, as of last week, a significant shareholder in nine very large corporations,” said Charles Elson, chair of the corporate governance program at the University of Delaware, who also serves on the HealthSouth and AutoZone boards, told FinancialWeek.

Despite the agreement among most board members to open up communication lines between boards and shareholders, many still think there should be limitations. One month limits geared to shareholders with primarily larger shareholder with big blocks of shares. “Wealth has its privileges,” said Peggy Foran, general counsel at Sara Lee Corporation, to FW.

The NACD principles stated that boards should reach out to “large, long-term shareholders” about governance issues and long-term strategy, and that these communications should involve at least one independent director, preferably the lead director, in addition to the CEO.

The median increase in totalactual compensation between 2006 and 2007 was 22 percent for S&P 500 CEOsand 15 percent for Midcap CEOs. On the other hand, Smallcap CEOs received amedian pay increase of 5.5 percent. The Corporate Library’s calculation fortotal actual compensation includes profits realized on the exercise of stockoptions and value realized from vesting restricted stock awards.

Total actual compensation increases are well ahead of risesin annual compensation, which includes base salary and annual cash bonuses. “While2007 was a relatively unsuccessful year for many companies, and this can beseen in the single digit increases in total annual compensation, this had yetto affect equity compensation,” said Senior Research Associate PaulHodgson, co-author of the report. “On the other hand, total annualcompensation did not go down.”

The survey, also co-authored by Research Associate Greg Ruel,examined compensation data in 3,242 U.S. and Canadian companies, makingit one of the most comprehensive CEO pay surveys on the market. Median totalactual compensation for all CEOs in the survey was just over $2,000,000, butlevels varied widely. For example, Lawrence Ellison, CEO of Oracle, earned almost$193 million, while some CE Os earned nothing. Median total actual compensationfor S&P 500 CE Os was just over $9.2 million.

“The Corporate Library’s CEO Pay Survey: CEO Pay2008” is available for download in The Corporate Library’s onlinestore. A fee is required to purchase the report.

The design and efficacy of CEO compensation contracts following an earnings restatement doesn’t change significantly but there is a sizable shift seen from option-based compensation to salary, a new study finds.

Option-based compensation is pay based on stock options. The general market movements affect the price of those stock options as opposed to employee-specific performance.

Using 289 restatements, or corrections of past financial statements, of the prior year as the benchmark, Professors Qiang Cheng at the University of Wisconsin-Madison and David B. Farber at the Trulaske College of Business at the University of Missouri-Columbia, found that while total CEO compensation does not significantly change by the second year after the restatement announcement, there is a sizable shift from option-based compensation to salary over this period. The paper was posted on The Harvard Law School Corporate Governance Blog.

The analysis also showed that the proportion of value of option grants to total compensation declined by 5.6 percent for the firms who restated earnings, while control firms, those who did not restate, experienced an increase of 2.6 percent over the same period.

CEOs at half of the firms who restated earnings studied left within two to three years.

The overall results suggest there are economic benefits to firms that reduce their CEOs’ option-based compensation. The reduction in option grants allowed managers’ adjust equity incentives to optimal levels.

In some cases, there is a higher likelihood that restatements will reflect income-decreases because as the economy continues to struggle, those stock options’ prices will decline. As such, option-based compensation is a concern.