Last year was lucrative for CEOs of the largest Carolinas companies.
Nearly 20 percent of the leaders at the Carolinas 50, some of the states' biggest public companies, received more than $10 million in total compensation, the highest rate since the Observer began its annual compensation review. The total increased by 30 percent between 2005 and last year, when it stood at $276 million.
But experts say those paydays could plunge amid a faltering economy and increasing scrutiny of executive pay.
“I think pressure on boards will be intense this year,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “The issue has finally hit the wall, given performance and public outrage.”
Several factors continue to put the squeeze on CEO compensation.
Scrutiny from politicians and the public alike remains high following repeated rounds of federal bailouts. Just last week, New York-based insurer AIG, which has received about $150 billion in government assistance, said its top executives would receive no bonuses for 2008 and have their salaries frozen – and that it would cut its CEO's pay to $1 a year.
And this month, as the chiefs of the big three U.S. automakers made their case for a bailout on Capitol Hill, lawmakers pressed them to slash their salaries. (The heads of Ford and GM deflected the questions, and the CEO of Chrysler said he'd work for $1 a year in salary, though he's believed to have other incentives.)
But even companies not receiving government cash are feeling heat to cut back executive pay amid a major economic downturn.
For many companies, like many consumers, this continues to be a rough year.
The Standard and Poor's index, which benchmarks stock for 500 of the nation's biggest companies, was up 3.5 percent for the year in 2007. This year through Friday, the index is down 38 percent.
In a new survey by Pearl Meyer & Partners, a compensation consulting firm, one in five board members, executives and human resource professionals said market turmoil will have a significant impact on executive compensation decisions during the next half year. And half of the 410 people responding to the survey expect salary growth to be lower next year.
Mark Rosen, managing director in Charlotte for Pearl Meyer, said he did not expect to see a lot of options being exercised for some time because the stock market has been so erratic, which could lead to a drop in overall compensation for some.
“If you ask me where executives are feeling the pain it's with equity stock or options they didn't sell in the past. I know it's worth a lot less today,” said compensation expert Tom Kelly, with Watson Wyatt in Charlotte.
One client held equity awards that were worth $3 million to $10 million last year and are worth $1.5 million or much less this year.
Initial findings from Watson Wyatt's 2008 executive pay research report show a growing number of companies are making executive pay programs more shareholder friendly.
Watson Wyatt surveyed 75 large, publicly traded companies. It found that 38 percent of them have “claw-back policies” to recoup incentives if the financial measures underlying the incentive plan need to be restated. In its report last year, 23 percent of companies had such policies.
Bonuses are also in the cross hairs. They likely will be on the decline, since they typically are tied to performance, said Alexander Cwirko-Godycki, research manager for Equilar, an executive compensation research firm in California. In November, Goldman Sachs' CEO and several other top executives said they will give up cash bonuses, stocks and options for this year.
This could put pressure on other companies to follow suit.
“CEO has become a dirty word in our society,” said Broc Romanek, a corporate governance expert and editor of TheCorporateCounsel.net. “They're not respected.”
The final impact of these forces may not be seen for some time, however.
Annual proxy reports that detail the compensation typically come out in the spring, and reflect numbers from the year before, so the 2009 numbers will detail what happened in 2008. Part of the compensation package could be tied to goals and assumptions companies made before the economy really took a turn for the worse in September, experts said.
Average week pay: $105,969
For the Carolinas 50, the average total compensation companies paid for just one week last year – $105,969 – is about triple the income of what a typical worker makes for an entire year in the Carolinas, according to an Observer analysis of the companies' proxy statements.
While the total compensation of $276 million actually represented a 20 percent decline from 2006, that was a year in which Bank of America boss Ken Lewis got $77 million from exercising stock options accumulated over the years.
The top five on the list took in between $16 million and $21 million each, and the average compensation paid by the Carolinas 50 was $5.5 million last year.
Just counting salary and bonuses, the CEOs pulled in an average of $1.6 million.
Lewis, who runs the biggest publicly traded company based in the Carolinas, had the highest base salary of all the executives on the list last year, at $1.5 million.
The Observer calculates annual CEO pay by adding base salary, bonuses, the value of stock awards, profits from exercising stock options and “other” pay, such as use of corporate planes.
Despite 2007 being an off year for many companies, compensation was still rising in part because of profits from equity awards, said Paul Hodgson, a senior research associate at The Corporate Library research group in Portland, Maine. Those awards accumulated value over time, and were typically worth more than when they were issued, even if companies experienced a tough year.
The median increase in total actual compensation for CEOs of S&P 500 companies last year was 22 percent, a study released in October by The Corporate Library found. Overall compensation for all firms in its survey rose 7.5 percent.
Thompson compensation up
The Observer's compensation review also found:
In a first for the list, three women are on the chart.
The highest paid Charlotte-area boss, coming in at No. 3, was Wachovia Corp.'s Ken Thompson, with $17.1 million, mainly through stock awards. Thompson's total compensation counts restricted stock that was granted for his performance in 2006 and prior years.
The troubled bank ousted Thompson in June and replaced him with Bob Steel. Despite Wachovia's woes, Thompson's total compensation increased by 5 percent last year.
The Wachovia board did not give Thompson and other top lieutenants bonuses for 2007. The board also did not grant him any restricted stock for 2007, but under federal guidelines, the most recent proxy filing counted grants from prior years because they were taken as an expense in 2007.
For the first time in three years, Lewis was not the top earner. It was Robert McGehee, who headed Progress Energy in Raleigh until his death in October 2007. His compensation was $21.6 million, mainly through stock awards granted to his estate after he died.
Because of his death, McGehee's total compensation increased by 311 percent. Contributing to the total, the company said in its proxy filing, were shares of restricted stock that automatically vested when he died, and additional stock units that were vested on an accelerated basis after his death.
The company said it was misleading and unfair to compare his compensation with other CEOs'.
“Mr. McGehee's untimely death resulted in the acceleration of certain compensation to his estate that otherwise would have occurred in later years,” spokesman David McNeill said in a statement. “But for his death, his compensation in 2007 would have been in line with his 2006 total compensation, which on a comparative basis was about $5.2 million.”
The leader with the most perks was Frank Harrison III with Coca-Cola Bottling Co. Consolidated, whose $1.7 million total was more than a million dollars greater than the next highest-paid person in this category. His perks, according to the company, included more than $1 million in income tax reimbursement, as well as personal use of the company plane, country club dues and personal financial planning and tax services.
In federal filings, the company said it provides certain executives with perks and personal benefits “that we believe are reasonable, competitive and consistent with the objectives of our compensation program of attracting and retaining the best officer talent.”
Some bosses saw their companies cover home security systems. This group includes Bank of America, BB&T Corp. and First Citizen Bancshares Inc. as well as Goodrich Corp., Laboratory Corp. of America and Piedmont Natural Gas.
In 2005, First Citizen said, its board “concluded that the safety of our key executive officers is a business concern, and it approved the recommended policy” to pay for security systems at certain executives homes.
The Carolinas 50 list covered 51 people (a pair of companies paid compensation to two different CEOs during the year, Progress Energy and Unifi Inc. One man, Bruton Smith, led two companies on the list: Speedway Motorsports Inc. and Sonic Automotive Inc.) Eight other companies have different CEOs than the people listed in their 2007 reports.
A dozen CEOs did not receive bonuses last year, including Lowe's Cos. leader Robert Niblock, whose 2006 bonus had topped $1 million. The Mooresville company is hurting because the national housing crisis means people are doing fewer home improvement projects.