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The AP reviewal of compensation with a view to the heads of companies in the Standard & Poor’s 500 fore-finger finds the median pay package added up to stingily $8.4 million. That’s a comfortable gain of with reference to $280,000 from 2006.
The 3 1/2 percent pay greaten for CEOs came flat as the landscape for the two workers and shareholders darkened considerably and the management was choked by the agency of a housing mart in free cadence, layoffs and soaring prices for fuel and food.
At the top of the AP list: John Thain, who took the reins of Merrill Lynch on Dec. 1, 2007. His $83 million defray package was supercharged by a signing bonus and other enticements that lured him from the New York Stock Exchange to conduct the investment bank as it was suffering its worst-ever losses.
Collectively, the 10 best-paid CEOs made more than half a billion dollars last year. Yet half the members of this stratospheric club were leading companies whose profits shrank dramatically.
The AP examination of CEO pay in 2007 mined data from the 410 companies in the S&P 500 that filed indemnification disclosures with federal regulators in the first six months of this year.
The AP’s formulary, based upon the body given conditions from the past couple years, adds up salary, perks, bonuses, above-market interest on pay set out of the character for later, and company estimates for the value of stalk options and stock awards on the day they were granted hindmost year.
That provides a clearer picture than pay totals required by the Securities and Exchange Commission, compensation experts say, because the SEC totals include expenses companies book during the year for previously granted stock requital and retirement benefits.
The value of fill and options given to CEOs may turn out to be significantly higher or lower if they are ultimately cashed out, but the fourth book of the pentateuch; census of the hebrews in the AP formula do reflect the board of directors’ estimate of the likely eventual payout.
The middle salary figure of about $8.4 million expedient half the CEOs in the AP analysis made more than that and half made less.
There were some signs companies were pulling back adhering pay at the acme: Out of the 316 companies in the AP survey that had the identical CEO two years running, about two-fifths lowered the total pay package as far as concerns their CEOs. However, the primary culprit for some was falling stock prices that cut into the estimation of the shares included in pay packages.
In many more cases, overall pay ballooned.
Rick Wagoner, chief executive of General Motors Corp., announced earlier this month the set had to close four plants that make trucks and SUVs because of lagging demand as fuel prices soar. That followed the posting of a $39 billion loss in 2007, a year when its permanent price fell by the agency of about 19 percent, without adjusting with respect to dividends.
And Wagoner? His pay rose 64 percent, to $15.7 the masses.
Last year was rocky for the economy and the stock market, making it a useful test of a concept called pay during the term of performance — a term companies use to sell shareholders without ceasing the archetype CEOs are sentient paid based on how well the company does.
According to this concept, trotted out frequently by the compensation committees of corporate boards in their proxy statements, a big chunk of CEO pay is considered “at jeopard,” meaning it could disappear allowing that CEOs dress in’t meet established metrics.
But the AP parsing construct that CEO pay rose and fell regardless of the direction of a joint concern’s stock price or profits.
Take KB Home, battered by means of the subprime lending crisis and the weak housing market. According to the Los Angeles-based homebuilder’s proxy statement, CEO Jeffrey Mezger is entitled to a specie bonus based on a percentage of KB’s profit.
The problem was there was not any return. KB Home incorrigible for the most part $930 million in 2007 and its stock lost 60 percent of its value. But Mezger still made $24.4 million, considered in the state of valued by the AP, including a $6 million cash honorarium.
He pocketed that bonus because he exceeded certain objectives the board had set out for him. Among them were improving performance on a customer satisfaction survey and developing senior leadership in his first year in the same proportion that CEO.
“Compensation has become a shell game,” said Richard Ferlauto, director of pension and benefits policy for the American Federation of State, County and Municipal Employees, a Washington suffer group representing government workers.
“So they accept away the bonus,” he said, “but then they still come up with ways to make sure the executive gets a big payout.”
Pay packages were a little smaller in the financial industry last year — banks, investing. firms, mortgage companies, insurers and other institutions, all were roiled by the subprime lending disaster.
For companies in the fiscal sector that had the same CEO two years in a row, median pay dropped 4 1/4 percent to $8.7 million in 2007. But that was still a smaller decline than the 6 percent globule in proceeds and 15 percent slump in haft prices before dividend adjustments, according to Standard & Poor’s Capital IQ data service.
In some cases, companies appeared at first glance to have kept their pledge to base pay on performance — solely to have a different picture emerge on closer inspection.
For example, Washington Mutual Inc.’s dunderhead took a nosedive last year — almost 70 percent — because of fallout from the housing and mortgage crises. The Seattle-base banking and mortgage lender incorrigible $1.87 billion in the fourth quarter alone, and $67 million through respect to the year.
WaMu’s board categorical not to give CEO Kerry Killinger a bonus for 2007. But board members moreover eliminated real-estate foreclosures and mortgage defaults as factors in whether to award him a bonus this year. After a shareholder revolt, the board decided to revise the formula, though it has not now announced what metrics will be used.
Profit at insurer XL Capital fell more than 80 percent last year, and its stock price slumped about 30 percent. But Chief Executive Brian O’Hara made $7.5 million, a raise of 23 percent.
In its proxy statement, the company called its profits “unsatisfactory” no more than said operating earnings, that exclude certain factors, were in greater numbers valuable than planned.
O’Hara, who plans to leave later this year, was also given 62,500 shares of restricted live-stock and 250,000 hoard options, which were not included in the calculation of his total compensation. The company reported that was to “reflect the importance of Mr. O’Hara’s role in the CEO succession process.”
“The cracks in the idea of pay for performance really fright to show at what time performance falters but pay still rises,” said Paul Hodgson, senior study associate at The Corporate Library, an self-directing corporate governance scrutiny firm. “It’s always a win-win scenario for executives.”
Even companies with huge profits and soaring stock prices can be faulted for not following the principle of pay for performance, according to some experts on corporate pay.
As an example, these experts quote the energy industry, where CEOs in the AP examine chalked up a median 32 percent gain in 2007.
It’s no secret that profits at oil and gas companies be obliged raced higher in recent years, and stock prices bear followed. But that’s not unavoidably because CEOs are greater degree of skillful at operating their businesses. The boon has more to do with the surge in the price of oil, which this year topped $130 a barrel with respect to the first time on the New York Mercantile Exchange.
“The passage out of an escalated price of oil shouldn’t flow back in to executives’ wallets, but to shareholders in the form of higher dividends,” said activist investor Gerald R. Armstrong of Denver, who owns shares in XTO Energy Inc.
XTO’s CEO Bob Simpson, with annual compensation of more than $50 million, has ranked in the AP’s list of the 10 highest-paid chief executives despite the past two years.
Pay consultants say that illustrates a weakness in executive pay programs. When outside factors help the bottom line, CEOs protect to benefit personally as well. But the opposite is not generally true, uttered Bill Coleman, chief compensation officer for Salary.com, which provides corporate hire information.
“How convenient,” he declared. “I take credit for everything good and I blame external factors for anything unwholesome, but say that shouldn’t affect my pay.”
There were examples of companies that really did cut posterior portion forward pay during a bad year.
Department store operator Dillard’s Inc., plagued by falling sales, profits and hoard value, cut CEO William Dillard’s pay bundle by two-thirds, to $1.1 million, according to the AP calculation.
Of course, compensation is not at all times designed to reflect how the company does in the year it’s handed out. Sometimes boards give out bonuses to the CEO conducive to a brilliant performance a year earlier, and at times they are pegged to future action goals.
At investing. tumulus Morgan Stanley, CEO John Mack was paid a gross of $41.7 million in spite of 2007, a rough year for the bench. That made him No. 8 on the AP list of CEOs.
But Mack’s pay was largely tied to his performance in 2006. The investment bank said in February that Mack would not have being taking home a bonus for 2007 because of the company’s heavy losses in the subprime lending crisis.
At Merrill Lynch, part of Thain’s $83.1 million pay parcel hinges on whether the stock rises. He got options on 1.8 million shares as part of his signing agreement, forward the other hand two-thirds of them will and nothing else vest if the price of Merrill stock clears specified hurdles for 15 straight trading days.
Right now Merrill shares buying and selling at about $35, far from the $80 a share level that has to be reached for the first bundle of Thain’s options to subsist in the money.
Shareholders aren’t in the boardroom whereas pay decisions are made, but at some companies they are gaining clout and holding directors more accountable.
In May, insurer Aflac Inc. became the first major U.S. company to give investors a vote on how senior management is paid, and shareholder proposals requesting an annual nonbinding vote on be profitable accepted slightly more support at U.S. companies this year.
This outlet has also spilled onto the presidential campaign trail. Democrat Barack Obama and Republican John McCain support giving shareholders some say on charged with execution pay. Obama wants to legislate it, while McCain says companies should get the rouse themselves.
The votes would be nonbinding, but they would still shine more light on charged with execution pay.
Original text: http://us.rd.yahoo.com/dailynews/rss/business/*http://news.yahoo.com/s/ap/20080616/ap_on_bi_ge/executive_compensation
