The average American can be excused for thinking that CEOs raid companies rather than running them.
What was once the most august job title in working America has become a synonym for greed and chutzpah. In recent years, the chief executives of Bear Stearns, Lehman Brothers, AIG, Citigroup, Fannie Mae, and Freddie Mac ran their companies into the ground while collecting pay packages that totaled eight and sometimes even nine figures. Some CEO perks sound like the trappings of royalty: car and driver, family use of private jets, personal security, lavish death benefits for family members, free tax and retirement-planning services. While CEO pay has drifted down on account of the recession, it still averages about $1.7 million, and the gap between the pay of CEOs and average workers has been widening for years.
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But some CEOs are worth the trouble. A new report by the Corporate Library, a corporate-governance research group, highlights 12 CEOs who get "paid for success." In response to recent corporate abuses, reformers in Congress and elsewhere are pushing hard for companies to link pay, bonuses, and other incentives to long-term performance rather than awarding bonuses based on inflated quarterly numbers or unproven pump-and-dump deals. Many companies claim that they strictly enforce pay-for-success rules, but studies by the Corporate Library and others show that it's mostly lip service; most boards of directors and compensation committees tend to be captive bodies that rubber-stamp the CEO's pay package with little scrutiny.
The 12 companies that do it differently, according to the Corporate Library, don't underpay their CEOs; median CEO pay for the group was about $5.5 million in 2008, far above the average for all chief executives. But the CEOs at these companies have a record of success that justifies their pay. All 12 companies have demonstrated consistent, long-term profitability that exceeds the average for their industries. And over the past five years, all have outperformed the S&P 500 stock index, which is down about 6 percent.
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Many of these companies also have policies that reformers say should be widespread. Some restrict or prohibit special perks for executives, with bonuses triggered by hitting difficult profitability targets that exceed industry averages. Several of the companies have "claw-back" policies that allow them to reclaim CEO pay if financial numbers have to be restated or strategic moves backfire down the road. And many restrict bonuses, or eliminate them altogether when the company has a bad year—whether it's the CEOs fault or not.
Here are five CEOs whose pay and performance set an example for the rest of corporate America:
Steve Jobs, Apple
Total pay over the past two years: $14.6 million
Five-year stock performance (through Dec. 1, 2009): up 510 percent
The ever provocative Jobs drew shareholder ire a few years back for one bonus that came in the form of a $90 million Gulfstream jet and for a sweetheart deal that replaced unredeemable stock options with $75 million in Apple stock. Jobs made amends by working for $1 in 2008, and the trendsetting tech company has also redeemed itself with a "say on pay" shareholder vote set for next year and some other progressive rules. Jobs and other executives are entitled only to perks that all Apple employees get, for instance, and there's no special severance for big shots. And cash bonuses are awarded to executives only if Apple meets double-digit growth targets for both revenue and operating income—a practice that less than 10 percent of companies abide by.
William Rhodes, AutoZone
Two-year pay: $8.5 million
Five-year stock performance: up 74 percent
Since there's no corporate jet at this auto-parts retailer, the CEO and other top managers fly commercial. A special medical plan for executives was discontinued in 2007, and the pay structure for executives is generally the same as for everybody else in the company, with no special severance for execs who leave the company. Unlike many corporations, AutoZone doesn't hire compensation consultants to help determine pay packages, a practice the Corporate Library and other research groups have linked to inflated pay packages.
[See 10 retailers gaining strength from the recession.]
Clarence Otis, Darden Restaurants
Two-year pay: $7.5 million
Five-year stock performance: up 16 percent
When sales fell at many companies during the recession, CEOs came up with "discretionary income adjustments" to compensate for performance bonuses their executives were forced to forgo. Not Darden. The restaurant company, which runs several popular chains including Olive Garden, Red Lobster, and Bahama Breeze, froze salaries as its revenues declined, while severely curtailing cash and stock bonuses—even though it managed to perform better than most other restaurant companies. The company also instituted a claw-back provision and upped its performance horizon from one year to three when determining bonuses.
[See 8 restaurants on a roll.]
Michael McCallister, Humana
Two-year pay: $26.9 million
Five-year stock performance: up 76 percent
McCallister's pay plunged from $24.5 million in 2007 to $2.4 million in 2008 because this healthcare provider paid no bonuses last year. That's because the company's earnings per share—the single factor determining bonuses—failed to improve from the levels of 2007. The Corporate Library includes Humana on its list mainly because its simplified bonus mechanism is clearly structured to drive performance.
[See why more competition won't fix healthcare.]
Daniel DiMicco, Nucor
Two-year pay: $11.2 million
Five-year stock performance: up 60 percent
Bonuses at this stingy steelmaker are paid only after the company has met a stringent set of requirements that guarantee it is performing better than competitors. Baseline salaries are relatively low, and some executives end up earning less than their peers elsewhere in the steel industry. And there are no special perks for executives. The payoff comes in long-term performance: Nucor has been profitable every year since 1966, a remarkable record in an industry that usually feels the pain of every recession.
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