A Big Pay Package for New Ford CEO
As Ford Motor Co.’s new chief executive, Alan Mulally is staring down a long road as he seeks to turn around the ailing auto giant. But two weeks into the job, he’ll be able to bank the lion’s share of the $20.5 million he will receive in the first year.
That amounts to $56,164.38 for each day of the year.
Mulally, who spent 36 years at Boeing Co., will draw a base pay of $2 million a year in his new job. In the first year, he will receive a $7.5-million signing bonus and a lump sum of $11 million to offset bonuses and stock options he forfeited by quitting his job as head of Boeing’s commercial aircraft division.
The 61-year-old executive’s pay was disclosed Friday in a Securities and Exchange Commission filing by Ford.
Ford, which has lost $1.4 billion in the first half this year and is firing tens of thousands of workers and shuttering more than a dozen plants, hired Mulally last week to direct an accelerated turnaround effort.
At Boeing, Mulally eliminated more than 30,000 jobs and revamped the supply and manufacturing systems to make its commercial airplane business profitable as demand slumped in the wake of the Sept. 11, 2001, terrorist attacks.
The size of his compensation package drew criticism from some who said Ford should wait and see whether Mulally is worth the money.
Alexandra Higgins, senior compensation analyst at Corporate Library, a corporate governance research firm in Portland, Maine, called the pay package “totally inappropriate and excessive for someone who has done nothing for the company yet.”
Officials of the UAW, which represents Ford’s manufacturing employees, could not be reached for comment. Daniel Pedrotty, research analyst with the AFL-CIO office of investment, said Mulally’s $2-million salary “sounds about normal for a company that large, but the fact that it is normal is a scandal.”
But other compensation experts said Ford was following normal hiring practices. Ford’s decision to replace Mulally’s bonuses and stock options isn’t unusual in executive compensation, said David Leach, a managing director at Strategic Apex Group compensation consulting in Los Angeles.
Others said the new CEO’s compensation was what Ford needed to pay to draw a talented CEO.
“He is taking over a hugely troubled company, legendary for nepotism and family meddling, and he will have to deal with that. It was going to take an industrial-strength package to get this guy,” said Alan Johnson, principal of compensation consulting firm Alan Johnson Associates in New York.
Ford’s chairman, William Clay Ford Jr., who gave up the CEO title to Mulally, said the former Boeing executive’s experience would be valuable in guiding the automaker’s turnaround effort.
Ford, 49, who takes no salary, collected $13.3 million in compensation in 2005, down 40% from 2004. He takes his compensation in options and restricted shares tied to company performance.
At rival General Motors Corp., Chairman and Chief Executive Rick Wagoner received total pay of $5.48 million last year, a 46% decline from 2004. His base salary for 2005 was $2.2 million.
Ford spokeswoman Becky Sanch said the carmaker “offers competitive pay packages.... We brought [Mulally] here after 36 years at Boeing, and we needed to make him whole for what he’s giving up by leaving there.”
Mulally’s base pay at Ford more than doubles the $825,000 in salary he was paid last year as head of Boeing’s commercial aircraft business. He also received a cash bonus of $736,000 at Boeing last year and about $8 million in long-term, performance-based stock and option awards.
Although his hiring wasn’t announced until Tuesday, Ford said that Mulally’s official start date was Sept. 1 and that he would receive the $18.5-million cash bonus and “offset” pay no later than Sept. 15.
Mulally also will receive 4 million in unrestricted stock options worth an estimated $10.5 million if the stock price -- which closed Friday at $8.77, up 19 cents -- hit certain levels over the next three years.
He also was granted 600,000 restricted stock units that vest in equal annual increments over the next three years and could be worth far more than their current value of $4.97 million -- if he does a good job and Ford’s stock price rises.
He also was given a “target” performance bonus of $3.75 million for 2007 if he meets the goals Ford’s board will set for him.
