Editor’s Note:
This story appears in the June 8 print edition of the Business Journal.
Executives of American International Group Inc., the New York financial services conglomerate at the center of the country’s economic storm, have been publicly scolded and even had their lives threatened over recent million-dollar bonuses.
The environment for local executives has not been quite so unforgiving, because with so many corporations losing money and getting pummeled in the stock market, paychecks for local executives took some considerable hits in 2008.
For the second consecutive year, cumulative pay for the top executives at Los Angeles County’s 50 largest public companies declined, falling by $5 million to barely top $400 million. More than half of the 20 highest earning chief executives in the county took home less in 2008 than they did the prior year.
Even the executive atop the Business Journal’s list, Occidental Petroleum Corp. Chairman and Chief Executive Ray R. Irani, saw his pay decline by more than 20 percent though at $60.5 million it was still nearly double the second-highest paid executive, Walt Disney Co.’s Robert Iger. Other big names, such as Patrick Soon-Shiong and Jeffrey Katzenberg, also earned less.
“The governance environment for executive pay has never been more difficult for companies to manage,” said David Wise, a senior consultant for Hay Group, a global management consulting firm that tracks executive compensation.
Using publicly available data culled from companies’ regulatory filings, the Business Journal analyzed the 2008 pay for the heads of the county’s 50 largest public companies by market capitalization. The executives were ranked by total company compensation, which includes salary, bonuses, stock and option grants, and any additional perks such as country club dues.
The rankings reflected a year in which widespread financial strife left virtually no companies unharmed, and populist outrage over seemingly extravagant pay packages for top executives boiled over.
As a result, boards are increasingly re-examining executive compensation packages and trending toward performance-based pay.
“This stuff is under the magnifying glass more than ever and companies are changing their programs to respond to the environment,” Wise said. “We saw declines in 2008, and we may see it again in 2009.”
Pay for performance
Irani, who topped the list for the fourth consecutive year, earned $60.5 million in 2008, a $17 million decline from the previous year. His base salary remained unchanged at $1.3 million; most of the decline came in option awards.
Irani’s bonus fell more than 15 percent in 2008 as Occidental’s stock price declined by nearly one-quarter after the economy collapsed in the fall.
“More than 90 percent of his compensation is incentive based and completely aligned with stockholder interests,” said Richard Kline, vice president of communications and public affairs for the L.A. oil and gas producer. “If performance goes down, compensation will go down, (and) it did indeed decline.”
Still, Irani’s final take-home pay was up sharply in 2008 when he took advantage of record oil prices earlier in the year to cash out more than $215 million in exercised options and vested grants. That put his aggregate pay at $276 million more than twice the $125 million he received in 2007.
Indeed, the aggregate total of executives’ compensation can fluctuate wildly depending on when options are exercised or when they cash out of stocks granted in prior years. Among the executives who saw big spikes in their income due to this was Craig Martin of Pasadena’s Jacobs Engineering Group Inc., who added a whopping $27.4 million to his $4.2 million total company compensation.
But companies are increasingly “looking to have a stronger pay-for-performance relationship,” Wise said.
Indeed, Ronald Sugar, chief executive of defense giant Northrop Grumman Corp., took home 17 percent less in total company compensation in 2008 than the previous year after Northrop’s financial situation declined. The company, which had recorded a $1.8 billion profit in 2007, lost more than $1 billion in 2008 after taking a substantial impairment charge.
Sugar earned $17 million in 2008, which still put him in the No. 5 position on the list of executive pay. However, citing “external economic conditions,” Sugar recently recommended that his and other Northrop executives’ 2009 salaries not be increased.
In a particularly tough year for homebuilders, KB Home Chief Executive Jeffrey Mezger saw his total company compensation drop more than 40 percent as his bonus fell by more than one-half. The board “exercised its downward discretion and reduced Mr. Mezger’s financial incentive,” the company said in a regulatory filing.
Mezger’s compensation totaled $9.6 million in 2008, earning him the No. 14 ranking.
Likewise, Ryland Group Inc. Chief Executive R. Chad Dreier’s total company compensation fell 23 percent to $11 million.
At Mattel Inc., the El Segundo toymaker that suffered like most toy companies through a rough 2008, Chief Executive Robert Eckert’s bonus completely evaporated last year after earning a $7 million bonus in 2007. His total pay was $7 million in 2008, down 38 percent from the previous year.
There was at least one notable name not on 2008’s list: Angelo Mozilo, the former head of Countrywide Financial Corp., who was No. 13 on 2007’s list and No. 2 in 2006. The disgraced mortgage lender was acquired in July by Charlotte, N.C.-based Bank of America Corp.
Fatter checks
A handful of company leaders, however, earned huge paydays in 2008 despite the rough year. Activision Blizzard Inc. Chief Executive Robert Kotick, for one, saw his total company compensation increase more than 1,000 percent to $28.9 million as his video game company completed a nearly $20 billion merger with French media conglomerate Vivendi SA. That payday bumped him up to No. 3 on the list.
In a year in which Public Storage’s stock price rose 12 percent, Chief Executive Ronald Havner Jr. earned $16 million in bonuses in 2008, with $6.3 million of that coming after Havner helped negotiate the sale of 51 percent of a European subsidiary. Havner earned $17.7 million in total compensation, up 600 percent from 2007, vaulting him all the way to No. 4 on this year’s list from No. 39 last year.
For those whose total company compensation declined, most of the hits came in bonuses, and stock and option grants rather than base salary. Indeed, just two of the top 50 earners in Los Angeles County saw their base salaries decrease in 2008.
“We are seeing only a moderate reduction in levels of base salaries,” said David Insler, senior vice president in the Westwood office of Sibson Consulting, which advises companies on matters such as executive pay.
Some salaries, in fact, increased considerably.
The salary for Stanley Zax, chief executive of Zenith National Insurance Corp., jumped from $2 million in 2007 to $2.5 million last year. His total compensation, however, fell 12 percent to $4.5 million.
With total compensation dropping for so many executives across entire industries, companies are less concerned about losing top talent than they might typically be.
Still, certain sectors, such as biomedical and entertainment, are performing a bit better. As a result, Insler said, competition for talent is more intense and companies in those industries are looking at programs that can help them retain executives.
Increasingly, he continued, companies are including time-vesting provisions and similar elements in pay packages that encourage executives to stick with the company for an extended period.
“There are some aggressive steps being put in place to make sure that along with performance there are programs that reinforce or achieve a level of retention,” Insler said.
IN THE BANK
Compensation can reach the stratosphere when executives cash out options or vested shares. Here are the top 20 earners by the value of those shares added to total company compensation. A full
Compensation List for the Top 50 CEOs
, with greater compensation details, is available as a free download for subscribers and for a small fee for others.
*Figures in millions.
Chief Executive
Company – – Total Comp* – – Options & Stock Vested* – – Aggregate
*
1) Ray R. Irani
Occidental Petroleum Corp. $60.5 $215.9 $276.3
2) Robert A. Iger
Walt Disney Co. 30.6 4.6 35.2
3) Craig L. Martin
Jacobs Engineering Group Inc. 4.2 27.4 31.6
4) Robert Kotick
Activision Blizzard Inc. 28.9 2.1 31.0
5) Ronald Sugar
Northrop Grumman Corp. 17.0 12.1 29.1
6) Ronald L. Havner Jr.
Public Storage 17.7 6.3 23.9
7) Kent J. Thiry
DaVita Inc. 11.0 8.5 19.6
8) Arthur M. Coppola
Macerich 6.5 12.6 19.0
9) Michael O. Johnson
Herbalife Ltd. 12.5 6.5 19.0
10) Robert A. Eckert
Mattel Inc. 7.0 11.3 18.3
11) Kevin W. Sharer
Amgen Inc. 14.5 3.7 18.2
12) R. Chad Dreier
Ryland Group Inc. 11.0 6.0 16.9
13) John B. Kilroy Jr.
Kilroy Realty Corp. 13.9 3.0 16.9
14) Mark Goldston
United Online Inc. 10.3 6.2 16.5
15) Paul Marciano
Guess Inc. 15.2 0.6 15.8
16) Chase Carey
DirecTV Group Inc. 13.0 2.8 15.8
17) Joel S. Marcus
Alexandria Real Estate Equities Inc. 9.2 5.8 15.0
18) Robert Mehrabian
Teledyne Technologies Inc. 4.6 9.6 14.2
19) James F. Flaherty III
Health Care Property Investors Inc. 9.3 3.9 13.2
20) John M. Dionisio
Aecom Technology Corp. 7.4 5.0 12.3
Source: Business Journal research; SEC filings
