CEOs enjoy big payoffs in 2010
BY SANDRA GUY Business Reporter/sguy@suntimes.com May 21, 2011 12:52AM
James W. Owens, Caterpillar. | M. Spencer Green~AP
Article Extras
Updated: August 30, 2011 12:16AM
A recovering economy and major changes in leadership and corporate structure pushed new names to the top of the list of highest-paid chief executives among the region’s largest companies in 2010.
Caterpillar’s retired CEO James W. Owen garnered the top-paid executive spot among Illinois’ 25 largest publicly traded companies. His pay more than tripled last year after Caterpillar’s net income more than tripled in 2010 from the year before, and revenues jumped 31.5 percent. About 75 percent of his total compensation resulted from a performance-based award granted when he retired — $17 million in restricted stock that he cannot sell or transfer for three years.
His compensation had been cut in half in 2009 because of tough economic times in the industry, said spokeswoman Bridget Young.
While in 2009, half of the CEOs endured pay cuts, this year only eight did. One of them was 2009’s top paid exec: Kraft’s Irene Rosenfeld. Hers decreased 34.8 percent to $14.6 million, moving her from first to 10th place, because the Northfield-based food company failed to meet its profit and revenue goals.
Abbott Laboratory’s Miles White, who in two of the past five years topped the region’s highest-paid CEO list, also saw his pay decrease — 6.8 percent to $20.6 million, placing him second to Owens. The small decline stemmed from a decrease in his stock and option awards compared with 2009.
Two of the top 10 paid executives are new to their posts: Samuel Allen of Deere and Ravichandra Saligram of OfficeMax.
Chicago CEO pay expert Don Delves said the local results dovetail with the nationwide trend of higher CEO compensation — reflecting the economic turnaround starting in 2010.
The median total 2010 compensation for CEOs of the Standard & Poor’s 500 was $9 million, a 25 percent increase from 2009.
Delves, whose Delves Group prepared the CEO pay analysis for the Chicago Sun-Times, said boards of directors need stock-option grants to reward CEOs whose options were underwater during the recession. A stock goes underwater when the price of a share falls below the owner’s option price.
The biggest pay raises went to executives who oversaw restructurings, including Motorola’s former co-CEOs: Sanjay Jha, now CEO of Motorola Mobility — the smartphone and cable TV set-top box division of the old Motorola — and Gregory Brown, now CEO of Motorola Solutions, overseeing police radios, bar-code scanners and radio-frequency readers.
Jha enjoyed a jaw-dropping 693 percent increase in his total compensation — to $16.7 million. He won $14 million in stock-option and restricted-stock awards and took a $1 million discretionary bonus because Motorola successfully split into two companies.
Brown’s payout increased 134 percent — to $17.7 million — because of cash and equity incentive awards.
Jha and Brown took salary cuts and refused bonuses in 2008, 2009 and 2010 to help a then-struggling and consolidated Motorola. The Schaumburg-based company cut more than 10,000 jobs in 2007-2008 as its mobile-phone business struggled amid the recession and brutal competition. The Jan. 4 split aims to benefit shareholders by letting each new company more sharply focus on its own products and customers.
CEO pay more than doubled at seven other companies. The increases at five companies sprang from top-level turnovers: Caterpillar, Deere, Officemax, Sears Holdings Corp. and United Continental Holdings.
The UAL (United Airlines) Corp. and Continental Airlines merger — the result of over-capacity, a tough economy and intense price competition in the industry — provided rewards for United-Continental Airlines Chairman Glenn Tilton, who retired as CEO in October. Tilton earned $15 million, compared to $4 million in 2009.
The more than doubling of pay for Aon’s Gregory Case (to $20.5 million) and Dover Corp.’s Robert Livingston (to $8.8 million) — reflect bonuses and rewards for their companies’ performance as the economy started pulling out of the recession.
Company spokespeople say the multi-million-dollar payouts for corporate bosses reward tough decision-making and CEOs’ sacrifices in hard times. The rich stock-option rewards have not yet vested in many cases, the spokespeople say. For example, Aon CEO Greg Case will collect his $10 million performance bonus next year only if the company meets profit, revenue and earnings goals.
“Despite company performance and the fact that our stock price is near an all-time high — $53.06-per-share market close May 12 versus 52-week high of $54.58 — (Case’s) underlying compensation is flat in the short term,” spokesman David Prosperi said.
Aon’s net income dipped 5.5 percent in 2010 but revenues increased 12.1 percent from 2009.
Former Sears Holdings Corp. CEO W. Bruce Johnson, who now leads the retailer’s supply-chain and off-mall businesses, received restricted stock valued at $4.3 million at its grant date. The award vests over the next four years, spokesman Chris Brathwaite said.
The Hoffman Estates-based retailer continued to struggle in 2010, with net income down 43.4 percent and revenues down 1.6 percent from 2009.
Critics say CEO pay remains supersized.
The AFL-CIO has put up a website, aflcio.org/corporatewatch/paywatch, criticizing companies for failing to invest their cash reserves in creating middle-class jobs. The labor organization’s analysis shows that the average CEO pay in 2010 — $11.4 million — is up 23 percent from 2009 and is 343 times the average worker’s $33,190 median pay.
Albert Meyer, president of Bastiat Capital in Plano, Texas, criticizes CEOs’ ability to buy stock at a discount when they exercise their stock options because the practice dilutes a company’s share base.
“The true cost of stock-based compensation is the price that shareholders ultimately pay to mop up the dilution that results from this practice,” Meyer said. “Middle-class Americans are not ‘investing’ for their retirement when insiders are using (the middle class’) hard-earned savings to monetize their stock options.”
The Delves Group, a Chicago-based executive compensation firm, used data from Equilar, Inc., to compile the CEO compensation chart. These numbers do not necessarily mirror the companies’ proxy statement because the shares are valued on the date they were granted.
Comments Click here to view or make a comment