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Saturday, Aug 13, 2022

Taking Home a Little Less

Ray Irani and Angelo Mozilo will never have trouble gassing up the Bentley or paying the mortgage on the mansion.

But the compensation packages that they and other L.A.-area chief executives received in 2007 did moderate in some respects from previous years’ highs.

In line with a ragged year in the stock markets, several top executives at Los Angeles County’s 50 largest public companies pulled down smaller paychecks and other compensation in 2007. The total was 8 percent less than 2006 but still hit $406 million a figure that drew ire from an executive compensation reform advocate.

“When you consider the kind of paychecks these guys have been taking home since 2001, moderation in 2007 was little more than an attempt to stave off shareholder backlash,” said Jerry Flanagan of Santa Monica-based Consumer Watchdog.

L.A.’s highest paid CEO once again was Occidental Petroleum Corp.’s Irani, who easily topped the list with $77.6 million in total company compensation, 40 percent higher than in 2006. His $1.3 million base salary didn’t change, but he received a bonus that was 53 percent higher in a year when the company reported record profits amid record oil prices, and struck deals to explore for oil in Libya and elsewhere in the Middle East.

For its annual executive compensation survey, the Business Journal ranks CEOs by total compensation, which includes salary, bonus, new stock grants and options, as well as “other” compensation such as payments for country club dues and home security. It’s based on data culled from company proxies and other Securities and Exchange Commission filings.

But that usually doesn’t give the complete picture of what an executive makes. Add in the value of stocks that were granted in previous years and vested last year, and options that were exercised, and the aggregate compensation of the 50 CEOs last year totaled $783 million. That’s down a whopping 32 percent from 2006 when it hit $1.14 billion.

A major reason for the decline: The total value of exercised options dropped 50 percent to $230 million, with the value of vested stock grants down 40 percent to $146 million. Because of the down market, executives exercised fewer options last year and when they did they were worth less.

For example, Irani did not exercise options last year, lowering his aggregate compensation to $126 million. That was unlike 2006 when he exercised hundred of millions of dollars in stock options to push his aggregate compensation above a jaw-dropping $464 million.

It was a different story for Countrywide Financial Corp.’s longtime chief Mozilo, whose financially troubled Calabasas-based company is being acquired by Bank of America.

During a year in which the subprime mortgage meltdown decimated the assets and stock price of the nation’s largest mortgage lender, Mozilo agreed to cut his base salary 34 percent to $1.9 million. He also did not take home a $20 million bonus as in 2006. That shrunk Mozilo’s total compensation to $10.8 million and dropped him from the county’s second highest paid public company executive to No. 13.

But factor in the $122 million value of his exercised options and the executive had a better year than Irani. The aggregate $132 million compensation was 6 percent higher than the oil chief’s pay. His decision to exercise options amid the housing crisis was one reason he was hauled before Congress in March along with other highly paid executives involved in the subprime meltdown to explain his compensation.

“Angelo ran his company into the ground and still is getting a big pay-out,” said Friedman Billings Ramsey equity analyst Paul Miller, who has long believed Countrywide was too generous with its equity-based compensation compared with other mid-cap financial companies.

Irani and Mozilo declined to comment for this story.

Stock difference

Moving to the No. 2 spot on the total compensation list was Walt Disney Co. Chief Executive Robert Iger, who received a slightly lower bonus and no salary raise in 2007. But he made up for that in stock and options awards, which increased his total compensation by 20 percent to $27.7 million.

Like Irani and every other executive in the top five, Iger did not report any option exercises during the year. His aggregate compensation was $31.9 million.

Northrop Grumman Corp. Chief Executive Ronald Sugar moved up to third on the list from fifth, even though his total compensation fell 5 percent. But more than $11 million of his restricted stock grants from prior years vested, which helped increase his aggregate total by 20 percent to $31.9 million.

Amgen Inc.’s Kevin Sharer was one of the few CEOs whose list ranking didn’t budge despite a 17 percent pay cut to $19.9 million. The fourth highest paid executive’s bonus and annual stock awards were slashed as the Thousand Oaks-based biotech saw its blockbuster anemia drugs hit by safety concerns.

And while the home construction business virtually collapsed last year as the housing bubble burst, KB Home Corp. Chief Executive Jeffrey Mezger saw his payday more than triple to $16.4 million, shooting him up to No. 5 on the list from No. 22. But that’s because last year was his first full year running the company after he was appointed CEO in late 2006 following the abrupt departure of Bruce Karatz.

KB Home lost $929 million in 2007 after earning $482 million the year before. That meant Mezger didn’t meet the company’s criteria for a performance-based bonus. Still, the board was pleased enough with his first year at the helm to give him a discretionary bonus of $6 million. Even so, Mezger still makes 60 percent less than his predecessor did.

Another home building executive whose company was hit hard by last year’s credit crisis was Ryland Group Inc.’s R. Chad Dreier, whose total compensation fell 55 percent as his salary, bonus and equity awards were slashed.

Other CEOs whose total compensation fell in 2007 included Avery Dennison Corp.’s Dean Scarborough, down 29 percent to $3.7 million; Health Net Inc.’s Jay Gellert, down 39 percent to $3.7 million; Activision Inc.’s Robert Kotick, down 30 percent to $2.8 million; and Public Storage Inc.’s Ronald Havner, who sank to No. 39 on the list from No. 15 as his pay dropped 67 percent to $2.5 million.

The falling compensation of the executives doesn’t surprise Paul Hodgson, senior research director at the Corporate Library, a corporate governance research firm.

Hodgson just completed a preliminary review of CEO compensation among Standard & Poor’s 500 companies. He calculated a median compensation increase of 15 percent last year though he said the largesse was not evenly distributed.

“At small and mid-cap companies you are seeing executives not get bonuses and not get those big grants,” said Hodgson. “But the CEOs at larger companies are still doing extremely well.”


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