SITTING PRETTY
If ever there was a year that you’d expect the state’s top corporate dogs to get hit in the wallet, 2008 would be the one.
The stock market crashed, bankruptcies soared and millions of workers were sent packing -- at a time when public outrage over excessive pay for top executives reached an all-time high.
But not everyone got the memo.Seven of California’s 10 highest-paid chief executives got huge raises compared with the previous year, bringing their average pay packages up about 6% to $32 million, according to The Times’ annual survey of executive compensation at publicly traded companies in the state.
Pay for one, Ronald Havner Jr. of Glendale-based Public Storage, increased 593%, thanks to a bonus for the sale of one of the company’s subsidiaries.
Hewlett-Packard Co. CEO Mark Hurd received $25.4 million in cash and $16.4 million in stock. Add that to rides on the corporate jet and other perks, and he took home $42.4 million for a 68% jump over 2007. The company’s earnings were up about 15% last year.
Alexander Cwirko-Godycki, research manager at Equilar Inc., the Redwood Shores, Calif., data analysis firm that conducted The Times’ survey, said he expected more reductions in executive pay when 2009’s results are reported next year.
“There’s a delay between when the message is sent and when companies start taking action,” Cwirko-Godycki said. “I think you are going to see bigger cuts in 2009.”
Already, he said, the data show that salaries and other forms of pay were reduced in 2008 at a third of the 100 companies tracked by The Times, bringing the total compensation down 6.8% for the year.
Among those whose pay went down last year were Jure Sola, CEO of Sanmina-SCI Corp., whose pay was sliced 70% to $2.2 million while his company lost $511 million during the year.
At Ingram Micro Inc., CEO Gregory Spierkel’s pay dropped 68% to $1.4 million, largely because of worthless stock awards. In the wake of the real estate downturn, Ryland Group Inc.
CEO R. Chad Dreier’s pay dropped 25% to $11 million, and KB Home CEO Jeffrey Mezger’s compensation fell 41% to $9.6 million.
The Times’ methodology of reporting total pay conforms with Securities and Exchange Commission guidelines, which reflect the cash and benefits received in a given year, plus the value of stock options granted and expensed by the company during that year.
Vineeta Anand, chief research analyst at the AFL-CIO office of investment, said she thought most of the pay cuts had been superficial.
“It seems as if companies have cut compensation and heeded the fact that this is a terrible economy and people have lost their jobs and homes,” Anand said. “But when you look carefully at the proxy statements, you find that a lot of companies have gone to great lengths to compensate executives at the same astronomical levels as they have been.”
Even with the pay reductions that some CEOs experienced this year, most are still earning hundreds of times more than their employees.
The AFL-CIO, which has become an activist shareholder on behalf of member pensions and whose website includes an Executive Paywatch section, says it would take the average worker more than eight lifetimes to earn as much as Ray Irani -- Occidental Petroleum’s CEO and California’s top-paid executive.
“I can’t think of another country in the world where the disparity between senior executive pay and the rank and file is as high as it is here,” said Thomas I. White, a professor of business ethics at Loyola Marymount University in Los Angeles. “I have always felt that this is going to emerge as a larger ethical issue.”
Expecting pay that’s 300 times more than an employee’s should generate shame, he said. It’s a form of economic gluttony.
Irani made $60.5 million in 2008, according to Equilar’s report. That was actually down 22% compared with his pay the previous year.
Irani’s pay declined because part of his compensation -- including a bonus and stock awards -- depends on shareholder returns, which shrank last year, according to the company’s SEC filings.
The company’s profit rose substantially during the year, but the company’s stock price got trashed with the rest of the market and, by December, was cut nearly in half from its summer highs.
Activision Blizzard Inc. CEO Robert Kotick earned $28.9 million in a fiscal year that was just nine months long, up 93% from the entire previous year. The company used the three-quarter-year time frame in its regulatory reports because Activision changed its fiscal year.
Factoring in the shorter year, his pay was up 142%.
It’s a big boost for the CEO of a company that swung to a $107-million loss from a $227-million profit in 2007.
Blizzard would not comment on Kotick’s pay, but Chief Financial Officer Thomas Tippl said that although it might seem that the company had a down year, that was only because of accounting issues. Activision completed a “reverse merger” during the year, causing a portion of the company’s profit to go unreported, he said.
In other cases, companies did well -- just not as well as the CEO.
Havner of Public Storage received a $15-million bonus for closing the sale of a 51% interest in the company’s subsidiary, Shurgard Europe, last spring. That, plus $1 million more in bonus pay, brought his total compensation to $17.7 million -- eighth highest in the state.
Largely as the result of that subsidiary deal, the real estate investment trust doubled its earnings and is sitting on a stockpile of cash at a time when similar businesses are struggling to find financing, said Clem Teng, the company’s vice president of investor relations.
John Hammergren, the 50-year-old CEO of McKesson Corp., made $40 million, putting him among the top five earners largely as the result of an extraordinary $11.2-million payment to his retirement plan during the year, boosting his cash compensation 28%.
McKesson’s profit climbed 8.4% in fiscal 2008, while revenue rose 9.4%.
Hammergren’s pension, which reflects 11 years of service, is worth $46 million, according to the company’s proxy statement. That means his pension accruals amount to roughly $4 million a year. Other McKesson employees get access to a 401(k) plan.
At Walt Disney Co., CEO Robert Iger received an 11% pay hike to $30.6 million, while the company’s profit rose 2%.
Some shareholder activists, in addition to complaining about Iger’s pay, said he has a “golden coffin” from Disney, essentially a death benefit that would pay his heirs $61.3 million if he dies while still working for Disney.
Disney spokesman Jonathan Friedland said about a dozen executives, including Iger, are entitled to benefits at death.
“It’s a low-cost program that has been useful in attracting and retaining executives for over 30 years,” he said.
Larry Ellison, CEO of Oracle Corp., earned $48.4 million in cash compensation during 2008 compared with $35 million the year before. That’s a 38% increase. At Oracle, net income last year was up 29%.
Ellison’s paycheck was dwarfed by the value of stock options he exercised during the year, which were worth $543.8 million.
“There’s a fairly consistent pattern at Oracle where Ellison cashes out really large grants and then gets another one,” said Cwirko-Godycki of Equilar. “The company is doing relatively well, but you’ll have to see if shareholders will continue to tolerate that [equity giveaway] in the current environment.”
Ellison exercised options worth $181.8 million in 2007 and $63.2 million in 2006. That adds up to $789 million over three years.
Oracle declined to comment on Ellison’s pay.
Critics of high pay for chief executives took comfort in the reduction in overall pay and the reductions taken by 35 of the CEOs in the survey.
The average 6.8% cut was a fraction of the hit that the average stockholder felt, considering that shares plunged roughly 40% last year. But, in the world of CEO pay, any cut is a significant cut, Cwirko-Godycki said.
“Companies definitely got the message this year and are much more attuned to how the public feels about executive compensation and the potential for backlash,” he said.
Indeed, a handful of oft-criticized companies, including Occidental Petroleum and PG&E; Corp., recently agreed to let their shareholders have a “say on pay” -- an advisory vote about the appropriateness of executive pay plans -- but not until next year.
Experts maintain that shareholder advisory votes on pay will become de rigueur for all U.S. companies within a year.
“Say on pay will be legislated by this time next year,” predicted Ric Marshall, chief analyst at Corporate Library, a research firm in Portland, Maine.
“The goal is not necessarily to set strict limits on pay, but to ensure that executives only get paid lots of money when shareholders make money,” Marshall said. “Shareholders want to know that executives are not insulated from the results of their decisions.”
Shareholder furor over bonuses paid to executives at failed financial services companies such as Merrill Lynch and American International Group Inc. has ushered in an era of unprecedented public scrutiny.
Already, the bank bailout law has placed a tight noose around executive paychecks and bonuses for any of the 400 financial institutions that took taxpayer dollars.
Sen. Charles E. Schumer, (D-N.Y.), last week introduced an Investors’ Bill of Rights, which would enable shareholders to cast a nonbinding vote on executive pay.
Several other legislators, including longtime pay critic Rep. Barney Frank (D-Mass), are working on additional measures that would ban executives from earning bonuses for taking excessive risks.
Meanwhile, new SEC Chairwoman Mary L. Schapiro has introduced a shareholder rights plan that would revive so-called proxy access -- allowing shareholders to oust directors who approve excessive CEO pay packages and to nominate directors of their own.
She also supports the elimination of broker voting, a practice that critics say allows managers to stuff the ballot box in favor of the status quo.
“We have been coming out of the dark ages, but progress has been made,” the AFL-CIO’s Anand said. “For the first time in the longest time, I’m actually optimistic.”
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