Democrat and Chronicle, June 25, 2011, Saturday

Democrat and Chronicle

June 25, 2011, Saturday

Democrat and Chronicle


CEO pay at U.S. companies has taken off again

If you're a worker bee, your paycheck was a bit bigger in 2010.

Total wages earned in the nine-county Rochester/Finger Lakes region for the first nine months of the year were up 2.2 percent over the same period in 2009, according to state Labor Department figures. That's a welcome bit of thawing after the freezes and pay cuts that came with the recession.

But if you're a queen bee, a head honcho at one of the area's biggest employers, chances are you did far better than that.

In instance after instance, leaders of the area's largest publicly traded companies saw their wallets grow considerably fatter in 2010.

Those rising compensation packages — typically a mix of salary, incentive cash bonuses and equity stakes such as stock or options — are no surprise.

"It was a good year for the stock market, and lots of compensation is related to firm performance, including stock price," said Kevin F. Hallock, chairman of Cornell University's Department of Labor Economics and director of its Institute for Compensation Studies.

Time Warner Cable CEO Glenn A. Britt got a 25 percent raise and a $2 million boost to his non-stock incentive pay, bringing it to more than $8.3 million. His total compensation was almost $10 million. Four other Time Warner Cable executives listed in the company's proxy statement made from $1.2 million to $3.8 million.

Larry D. Young, CEO of Dr Pepper Snapple Group, owner of the Mott's juice plant in Wayne
County, received nearly a 5 percent salary increase and $1.1 million more in stock options compared with 2009, more than making up for a $200,000 decline in incentive cash. His total pay package was almost $2.9 million.

Harris Corp.'s Howard L. Lance received $1.2 million more in equity and bonus cash than he had in 2009, raising total compensation to $3.4 million. Harris' RF Communications unit is one of the largest corporate employers in the Rochester area.

At United Technologies Corp., which owns the Lenel Systems International security systems and software firm in Perinton, CEO Louis Chenevert saw his salary jump 11 percent in 2010 to nearly $1.6 million. His $4 million cash bonus — based on yardsticks such as the company's earnings — was a $2.3 million improvement from 2009. Chenevert's pay totaled $7.3 million.

The story was the same again and again at many companies across the local economic landscape, though smaller firms tend to pay their CEOs more modest sums.

The rapid growth of executive compensation is nothing new. CEO pay packages started booming in the 1990s, according to data from Massachusetts Institute of Technology and Stanford University.
Throughout most of the 20th century, the heads of the nation's largest companies received annual compensation of less than $1 million. But that figure rocketed to more than $4 million during the 1990s and has been above $8 million since 2000.
Creating value

The size and makeup of executive compensation packages revolve around creating company and ultimately shareholder value, said David Larcker, a professor at the Stanford Graduate School of Business and co-author of the new book Corporate Governance Matters. "When the decision the person makes has a tremendous impact on lots of people (and the person is) heading up a tremendous amount of resources, you want to be sure he's really motivated to do the right thing," Larcker said.

Not every CEO of local interest had a great 2010. Compensation for Eastman Kodak Co.'s Antonio M. Perez totaled $1.76 million, down from $2.9 million in 2009. The big drop for Perez was in incentive pay, which declined to $341,000 from $1.7 million. He also received less in stock and options.

Management theory guru and Presidential Medal of Freedom recipient Peter Drucker famously held that executives' pay packages should top out around 20 to 25 times what the average worker in the company makes. Otherwise, Drucker said, the company runs the risk of morale problems and a lack of teamwork among middle managers and rank-and-file workers.
But that idea has largely flown out the window among major corporations. By 2009, heads of major American companies were paid, on average, 263 times what the ordinary American worker made, according to the Institute for Policy Studies, a Washington think tank.
The average wage in the Rochester area in 2010 was $42,625, according to state figures. Not counting stock and options, Kodak's Perez made 41 times that amount, while Ursula M. Burns' compensation at Xerox Corp. was 73 times higher and Corning Inc. CEO Wendell P. Weeks made 191 times the rank-and-file average.

However, Stanford's Larcker said that in certain industries it's expected that the CEO will make a lot more "because these are the people creating the value and the ideas." He mentioned Steve Jobs at Apple Inc. and Larry Ellison at Oracle Corp. "There are a lot of these guys here in Silicon Valley. Everyone agrees CEOs should be paid more than the average worker. The issue is how much more."

Say-on-pay

The pay packages received by the heads of large corporations have long been a hot-button issue, particularly when times are tough for workers. At Frontier Communications Corp.'s shareholder meeting last month in Connecticut, members of the Communications Workers of America union handed out leaflets decrying the increasingly large sums being paid to top executives — CEO Mary Agnes "Maggie" Wilderotter received a 10 percent salary increase, an 86 percent bump in stock awards and a $750,000 bonus in 2010 — while the company is seeking worker concessions in areas such as medical costs.

The Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law last year requires that a company's shareholders get an advisory vote on executive compensation — "advisory" meaning that the vote doesn't actually carry any weight but serves more as a gauge of sentiment.

Yet judging by such say-on-pay votes, shareholders generally don't think CEOs are overpaid.

In May alone, executive compensation packages at Xerox, Kodak, ITT Corp. and Time Warner Cable were endorsed by substantial margins during annual shareholder meetings.

"What will be very interesting is the effect of say-on-pay in a year when the market is down," said Hallock, the Cornell compensation expert. "Are shareholders voting yes because they like the pay packages or are they voting yes because the stock is going up and everyone is happy?"

MDANEMAN@


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