Leaders of the Valley’s largest publicly-owned companies saw big increases in executive pay, driven by large gains in cash bonuses and the value of stock awards.
Eighteen of the 25 best-paid CEOs saw gains in their compensation, according to the San Fernando Valley Business Journal’s List of Valley’s Highest Paid CEOs. The average pay package climbed nearly 40 percent, according to the List, which was based on proxy statements from the calendar year 2010, the latest publicly available information.
While salaries remained largely flat, performance based compensation drove overall pay significantly higher as CEOs benefitted both from improved corporate earnings in 2010 and a rising stock market.
Executive pay for 2011 is expected to be more of a mixed bag based on each company’s individual performance and share price, rather than overall stock market trends.
“Some did well in 2011 and those CEOs will see their pay grow and be rewarded, while others struggled and will see their compensation go down,” said Aaron Boyd, director of research for Equilar, an executive compensation research firm based in Redwood City, Calif.
But 2010 was a clear winner for most companies and their CEOs, especially the Valley’s largest. Robert Iger, CEO of The Walt Disney Co., saw his total compensation increase 24 percent to $29.6 million. Performance-based pay made up the vast majority as his base salary was just 7 percent of the total, or $2 million. Options exercised and grants vested pushed his aggregate pay package to the stratosphere: a whopping $56.7 million. He could thank the rising value of Disney stock, which gained about $8 a share and closed around $40 a share at the end of 2010.
The other factor in rising compensation was large cash bonuses awarded in 2010. Those bonuses were often based on lower than usual targets in 2010, Boyd said. “Companies exceeded their targets, but in many cases those targets were set very conservatively because of the economic environment. Back in 2009, no one was sure what kind of recovery we would have.”
For companies that did well in 2010, those cash bonuses turned out to be pretty substantial. Disney’s Iger got $13 million; Northrop Grumman CEO Wesley Bush got $3 million; Amgen CEO Kevin Sharer got $3.6 million and Dole CEO David DeLorenzo got $2.6 million.
Pay and performance were more tightly linked in 2010 in part due to the passage of the Dodd-Frank Financial Reform Act, which gave shareholders a say for the first time in how executive pay is structured. As a result, CEOs that managed to drive up revenues, profits or share price saw larger gains in their pay package.
“Shareholders demanded pay for performance and we saw that reflected in pay packages,” said Brandon Cherry, principal in the executive compensation practice at Hay Group.
Power-One Inc. CEO Richard J.
Thomson saw his compensation package soar 225 percent, the largest gain on the List, as the Camarillo company that provides power management solutions saw shares roughly double in value to about $10 a share through 2010. He took home $8.2 million in 2010; his base salary was just $544,231, just 7 percent of the total.
Thompson’s performance-based compensation might be in for a big drop in 2011, however. Earnings fell 40 percent to $32 million in the quarter ended Jan. 2, 2012, while shares slid from roughly $10 to $4 a share during the calendar year.
The executive whose performance is most closely tied to performance is Jeffrey Katzenberg, who is paid just $1 in salary and nothing in cash bonus. The head of DreamWorks Animation SKG Inc. took home $6.7 million in stock and option awards in 2010 as the value of DreamWorks shares slid from about $40 to $30 a share in 2010, down sharply from his 2009 pay of $23.4 million, during which year shares soared from $25 to $40. Katzenberg, unfortunately, probably won’t do much better this year. Shares of DreamWorks have fallen to less than $20 from $30 a year ago and closed at around $17 last week with a 72 percent decline on fourth-quarter earnings.
Despite the public outcry over executive compensation and the Occupy Wall Street movement that took CEOs to task for their pay, the so called “say in pay” reform didn’t lead to an indictment of executive compensation, Boyd said.
Across the country, only 1.4 percent of companies failed to get shareholder approval for their CEO pay packages, Boyd said. “What we learned is that, in general, shareholders approved of pay policies,” he said, especially performance-based pay.
Among the companies that did run into some resistance from shareholders, however, was Disney. Of concern were so-called tax gross-ups, in which the company pays the taxes on a CEO’s perquisites, such as air travel, or a company car.
At issue in Disney’s case were payments to compensate executives for the tax on the value of potential future severance packages. The company removed the controversial “excise tax gross-up” from its executive pay package last March in response to a threat by a shareholder advisory firm to vote down the company’s executive pay plans if the company did not capitulate.
Said Boyd, “We also learned that companies are listening and they are receptive.”