Should C-level salaries be subject to closer scrutiny? Before you answer, consider these five CEOs whose earnings went through the roof in 2008, despite the fact their companies’ stock prices dropped off a cliff:
- Michael Jeffries, Abercrombie & Fitch: Jeffries made almost $72 million in 2008, according to figures from the Corporate Library. His compensation included a $6 million bonus awarded to him simply for not leaving the company (despite the fact he’s been there for nearly 20 years). Meanwhile, A&F stock prices fell more than 70% last year.
- John Faraci, International Paper: International Paper’s stock prices dropped 63% in 2008 … 63%! Fortunately, the drop had no impact on Mr. Faraci’s earnings. Faraci made $38 million last year - more than half of which was the result of pension payments. Still, that’s a lot of take-home pay for a CEO whose stock prices sunk like a stone in 2008.
- James Stewart, BJ Services Company: The bulk of Mr. Stewart’s $35 million salary came as a result of stock options that were originally set up more than five years ago. That turned out to be a pretty shrewd business move for Stewart, especially considering the company’s stock prices plummeted by more than 50% during 2008. The company was also sold to Baker Hughes. Stewart will remain CEO until the end of 2009, at which point he may just pull the string on his golden parachute and sail off into the sunset.
- Brian Roberts, Comcast: While Comcast stock prices only dropped by 2% in 2008, Roberts earned more than $40 million dollars, according to the Corporate Library. While more than half of that was the result of stock options, Roberts also awarded himself two bonuses – a “discretionary” bonus for $800,000 and a not-so-discretionary one for more than $7 million.
- Eugene Isenberg, Nabors Industries: Isenberg’s salary in 2008 was just under $80 million. 75% of that was due to bonuses Isenberg receives based on “company cash flow.” It should be noted that while Isenberg was being rewarded based upon apparent company earnings, Nabor’s overall stock price dropped more than 50%. Over the years, the same bonus plan has accounted for more than $600 million of Isenberg’s overall compensation. The company claims it has since restructured Isenberg’s plan, so it’s no longer based on the same magic “cash-flow” formula.
So what’s the answer? Did most of these CEOs simply make smart business decisions that ended up paying dividends further down the line, or should they be subject to closer scrutiny? What regulations or safeguards would you suggest to keep corporate earnings in check? Do you feel there should be more or less focus on regulating C-level compensation?
Tell us what you think.
Source: “Five Most Overpaid CEOs,” by Ben Rooney, CNNMoney, 9/28/09
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Tags: bonuses, CEOs, Compensation, economy, Recession, salary, Stocks
October 22nd, 2009 at 3:42 pm
Federal Regulators should establish ground rules for the Boards of public corporations setting standards and ranges that they can operate within. Contracts/salaries with executives should require approval by the regulators based on tax filings and stock performance. Outside auditors should be held accountable for doing the work that they are paid to do and then the regulators will have a better chance of getting a truer picture of executive performance. There should never be bonuses for company management that has not met their targets. Bonuses for performance should be withheld until management decisions are proven in the market place evens if it takes a few years. Too often they meet their annuals targets, pocketed bonuses for developing a failing product.
October 22nd, 2009 at 9:47 pm
Keep the government out of private business. I do not want them telling me how much I can and can not make. Before you know it they will be telling you what kind of job you can and can not do.
October 23rd, 2009 at 12:00 pm
These ceo’s and the investors that go to bed with them know exactly what’s going on.
Considering what goes on in the stock market and how “unhooked” that reality is from the other reality, it’s no surprise that anyone with an IQ bigger than their waist size would want a compensation package that’s not tied to stock market performance.
What I have seen, in the case of start-ups, is that even though the ceo is either the owner of the company, or a partner, they agree on a salary package, rather than just profit-sharing because if the company doesn’t do well, they still get the same compensation, and if the company should tank, that money came out of invetors’ pockets or bank loans and those are the ones holding the candle after everything’s been said and done. Like I said, however, everybody goes into this bed knowing what they’re getting into. Seems insane to us lowly creatures for whom $800K buy a house and $800M seems as real as Mickey Mouse, but that’s what it is.
As far as government involvement… With all the interests and interest groups playing together in washington, it’s easier to keep track of a King’s whim than of how our fine politicians will handle anything that comes their way.
Regulations at the corporate level should be established by the stock holders, or if that’s not possible, those who own or want to own stock are free to buy into the existing culture or go elsewhere with their money. Nobody’s pointing a gun at their heads forcing them to invest in something they don’t believe. This sort of thing affects the lives of employees as well, someone is bound to say here; they can also vote with their feet. No gun to their heads either.
Alex
October 29th, 2009 at 3:20 pm
I do think many CEO’s are overpaid but i think your time frame is unfair. How many companies can you find who’s stock didn’t get hammered in 2008!!?? Very few. Your point is a good one and there are many examples without having to pick a period in the greatest recession since 1929.
November 4th, 2009 at 1:08 pm
It seems that CEOs are not measured by what they produce. Most sales people are measured by the volume of sales they produce. It should be the same for a CEO. If the CEO brings the company into high production and good sales then the CEO should be rewarded. Conversely the CEO should not be rewarded if production falls and sales fall. The CEO is the leader of the company and should be held to a standard of production and a standard of good decisions which end in great sales. The idea of rewards and penalties should apply. If a job is well done then there should be a reward. On the other hand if production and sales are down then penalties should apply.
December 31st, 2009 at 4:08 pm
Please don’t refer to annual composition as “Salary” when it isn’t Annual compensation can be composed of many forms, including salary, bonus and stock incentives. I don’t have a problem with a CEO who has a great compensation year, when he exercises long-term stock options that have appreciated over the _long term_. Even if a company is down 50% last year, if it is up substantially since the stock options were granted (assumedly true since his options appreciated so much in value), then the shareholders win over the long term as well as the CEO.
This contrasts starkly with pay packages that are heavy on bonus or salary, especially when large bonuses are awarded despite lackluster or poor corporate performance during the course of the year. Bonuses should be for work “above and beyond the call”, and Salary should be for “doing the job”.
So in short, I don’t have a problem with Stewart’s package (#3) (assuming he sold throughout the downturn in his company’s stock performance throughout the year) but do have issues with 1, 4 and 5.