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Public firms' CEOs see total compensation fall

Rochester Business Journal
July 29, 2011

For two years after the start of the Great Recession, CEOs at major U.S. corporations had flat or declining pay. That ended in 2010, as shown by an analysis done for the Wall Street Journal by the Hay Group. It found that the median value of salaries, bonuses, long-term incentives and grants of stock and stock options for the CEOs of 350 major companies jumped 11 percent to $9.3 million.
 
A similar analysis by the Associated Press using data provided by Equilar, an executive compensation research firm, found that the typical pay package for the CEO of a company in the Standard & Poor's 500 was $9 million in 2010-up 24 percent.

 The trend of rising pay did not extend to CEOs of the homegrown public companies among the RBJ 75, however. Total compensation for top executives of these firms dropped 11.4 percent in 2010. 

But the trend did hold true for local non-profits. As a group, the CEOs of the non-profits among the RBJ 75 saw their average compensation rise by 16.4 percent in 2009, the most recent year for which data are widely available. (Compensation information from 2008 and 2009 was accessible for 23 of the 25 chief executives of non-profits. Lakeside Health System had a leadership change during the period, and ESL Federal Credit Union declined to provide information for CEO David Fiedler.)
 
Collectively, the 24 public-company CEOs earned $59.1 million in 2010, down from $66.7 million in 2009. (The totals for both years exclude Torvec Inc., whose CEO-Richard Kaplan-joined the firm in September 2010.)
 
Eleven local CEOs received compensation of $1 million or more last year, led by Xerox Corp.'s Ursula Burns with $13.2 million. While three of the region's top executives made more than $10 million in 2009, Burns was the only one on the list to do so for 2010.
 
Robert Sands, president and CEO of Constellation Brands Inc., followed Burns with $7.4 million. Gannett Co. Inc. president and CEO Craig Dubow received $6.4 million, and Munro Muffler Brake Inc. president and CEO Robert Gross got $6 million. Antonio Perez, chairman and CEO of Eastman Kodak Co., made $5.7 million.
 
In 2010, seven public-company chief executives received less pay, led by Gross and Perez, whose compensation each dropped 54.7 percent, and Kimberly Till, former president and CEO of Harris Interactive Inc., whose pay fell 58.8 percent to $601,802.
 
Edward Pettinella, president and CEO of Home Properties Inc., had the largest one-year increase in compensation on a percentage basis. His pay soared 133 percent to $5.4 million.
 
Compensation figures are from fiscal 2009 and 2010 proxy statements and include cash compensation, bonuses, value of stock and option awards and non-equity incentives.
 
The use of incentives in compensation packages has become more common over time, said Daniel Tessoni, assistant professor of accounting at Rochester Institute of Technology's E. Philip Saunders College of Business and member of a number of compensation committees.
 
"These plans are based on some financial metric or stock price, and these can include stock grants or options or some level of ownership, which conceptually would align the interests of stockholders with the interests of the CEO," Tessoni said. 

Non-profit CEOs
Although local non-profit organizations include some of the largest employers, the salaries there remain lower than those at public companies, with one notable exception.
 
Timothy McCormick, former president and CEO of Unity Health System, had total compensation of $4 million for 2009, but Unity officials said that was unusual and was brought about by his retirement package. In 2008 McCormick earned $1.1 million in compensation.
 
In all there were four non-profit executives who made more than $1 million in 2009. David Klein, president and CEO of Lifetime Healthcare Cos. Inc., saw his pay drop from $2.7 million in 2008 to $1.9 million in 2009.
 
Mark Clement, president and CEO of Rochester General Health System, had the next-highest compensation with $1.1 million.
 
James Dooley, president and CEO of Finger Lakes Health, received $1 million in compensation. He was one of eight non-profit executives whose total compensation declined from 2008 to 2009. Dooley earned $1.3 million in 2008.
 
The presidents of the area's largest local universities trailed Clement and Dooley, with UR's Joel Seligman making $725,301 and William Destler of Rochester Institute of Technology receiving $682,930.
 
College presidents as a whole saw the rate of their compensation growth slow for the 2009 fiscal year, the Chronicle of Higher Education reported last year. Base salaries remained the same for more than one-third of the 185 presidents in a survey, and compensation dropped for 10 percent.
 
Seligman was part of that 10 percent, though his salary fell only $1,688 from 2008 to 2009-or 0.2 percent-as he pledged to give back part of his compensation while the university was experiencing fiscal challenges.
 
None of the other CEOs on the RBJ 75 non-profit list made more than $600,000. Two received compensation in the $500,000 range: Linda Farchione, president and CEO of Thompson Health, and Mark Gearan, president of Hobart and William Smith Colleges.
 
While the for-profit sector allows more options in setting compensation packages tied to performance, that is more difficult for non-profit organizations, Tessoni said.
 
"In the non-profit sector there are not as many options, and you generally can't have profit sharing or compensation based on overall performance," he said. "Performance is still critical for the organization, so if I'm the CEO I have to be aware of the organization's financial performance, and if it lags, my compensation could be at risk. But it's a little harder to tie that into pay metrics."

Adding context
For the general public, especially after the economic collapse and subsequent bailouts of 2008, CEO pay still can be a touchy subject, Tessoni said. Debates have arisen about whether the government could or should set pay limits for executives at institutions receiving bailouts, and public attention turned to the high salaries and bonuses some executives receive.
 
But Tessoni, who has served on a number of compensation committees, said careful work goes into determining pay for top executives.
 
"Remember, none of these individuals are setting their own compensation; all of them are under governance models set up by the board committee," he said. "How these committees are supposed to work is to determine what market rates are, what compensation schemes are appropriate, and ensure that whatever packages they offer are within acceptable parameters."
 
While critics argue that companies should be able to find qualified executives who are willing to earn less than market rates, this is difficult and not common, Tessoni said. The public often focuses on examples of executives who do not earn the high compensation they receive, but this can be true at any level in any field, he added.
 
The nature of executive compensation has shifted in recent years, Tessoni said. Though incentive plans have become more common, companies are seeking a better balance between these plans and fixed rates of pay.
 
"There's this struggle between fixed pay and less incentives, which conceptually might not be optimizing behaviors, (and) no fixed pay at all and all incentives, which brings a risk of questionable actions," he said. "For example, if we load up a CEO with stock options, then the focus is on driving up the stock price, and this may tempt some executives to take actions that artificially drive it up.
 
"Over time," Tessoni added, "the pendulum of compensation trends swung more toward that incentive side, but there's some public backlash now because these plans generated compensation packages that have been viewed with skepticism."

7/29/11 (c) 2011 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail service@rbj.net.


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