Why CEOs Survive Recession Better Than Others

CEO pay barely fell in 2008—and could come roaring back this year.

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It's good to be CEO, even in a recession. Especially in a recession.

Hewlett-Packard's stock price fell 29 percent in 2008, and the company announced plans to lay off 25,000 workers after it acquired Electronic Data Systems. But CEO Mark Hurd didn't feel the pain. Hurd earned $43 million in 2008, a 73 percent raise from his 2007 pay. Perks included $136,000 worth of personal travel on corporate jets, paid for by shareholders, and $7,472 in travel expenses for Hurd's family, according to an analysis of HP's annual proxy filings by shareholder activist Eric Jackson. Several other top HP executives earning multimillion-dollar pay got double- or triple-digit raises.

[See 10 gaffes by doomed CEOs.]

Hurd has been a strong CEO since he took over in 2005, generally credited with enhancing HP's profitability after a period of drift. But the big pay hikes during a dismal year are generating some of the toughest criticism of Hurd's tenure. "There are some very troubling aspects about how he, his management team and his board approach executive compensation and governance," writes Jackson. "Investors should steer clear of this Silicon Valley icon until it gets its act together."

For all the talk of reining in CEO pay and enacting financial reform—even from some CEOs themselves—it's beginning to appear that very little has changed in the way companies are run and executives get paid. A new survey of CEO pay by research firm the Corporate Library finds that median take-home pay among more than 2,000 CEOs fell by 6.4 percent from 2007 to 2008, the first time on record that CEO pay has gone down instead of up. But that was in a year in which the stock market fell by 37 percent and the economy lost 2.6 million jobs. By almost every measure, the vast majority of companies performed far worse in 2008 than in 2007. "While the downturn has affected pay, the link between pay and performance remains weak," says the report. "Such a minimal decline in pay given the massive decline in shareholder value is hardly an adequate response."

A surprising number of CEOs didn't personally experience the downturn at all. Of 100 industries tracked by the Corporate Library, median CEO pay went up in 40. The 10 highest-paid CEOs included seven from the oil industry, which had a banner year as gasoline prices hit $4 per gallon. The others were Stephen Schwarzman of the Blackstone Group, Larry Ellison of Oracle, and Michael Jeffries of Abercrombie & Fitch. Schwarzman earned the most: $702 million. No. 10 Jeffries earned $72 million.

[See how to pay CEOs what they're worth.]

Reformers want to see much tougher rules linking executive pay to the long-term performance of their companies, and a few CEOs took a step in this direction. Lloyd Blankfein of Goldman Sachs endured a 97 percent pay cut in 2008, because the tony Wall Street firm rescinded bonuses for top executives. Jamie Dimon of JPMorgan Chase went without a bonus as well, resulting in a 92 percent pay cut. But both of those companies were big bailout recipients under the microscope of politicians and regulators. And both have paid back all their bailout money, which means Blankfein and Dimon will probably do a bit better in 2009.

[Get ready for the miraculous hollow economy!]

It's likely that overall CEO pay will bounce right back up in 2009 as well. Many CEOs earn a relatively low base salary, with the majority of their total compensation coming from bonuses, company stock, or options to buy stock. The plunge in the stock market last year means the value of CEO-owned stock fell as well, and many CEOs declined to exercise options to sell stock since prices were so low. That has changed in 2009, with the market up smartly. It could even turn out to be a record year for CEO pay raises, as they springboard off of last year's lows. At least somebody's getting ahead.


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  • Rick Newman

    Rick Newman is the author of Rebounders: How Winners Pivot From Setback to Success and the co-author of two other books. Follow him on Twitter or e-mail him at rnewman@usnews.com.