Few issues have come under fire more in the past tumultuous year than CEO pay. The financial crisis and economic meltdown have given rise to copious new rules, regulations, and compensation practices, while plummeting stock prices have resulted in smaller packages for many top brass.
But some CEOs still walked away from 2008 with a massive chunk of change. In a prelude to its annual CEO pay study, governance research firm the Corporate Library on Aug. 13 released the names of the 10 highest paid CEOs. The list provides plenty of evidence that executive pay is still hitting new heights, and that some pay still isn't tied to performance. Several of the top 10 were paid bonuses either to simply stick around or that weren't explained by performance metrics. "There are discretionary bonuses all over the place," says Corporate Library senior research associate Paul Hodgson.
Unlike other executive pay studies, the Corporate Library's comprehensive report includes more than 3,300 public companies and is released after most corporate proxy reports have been filed. It also uses "total realized compensation," or a calculation of annual pay that includes the shares of restricted stock that were vested and the stock options that were exercised in the prior year.
Blackstone On Top In a nutshell, says Hodgson, this is the best reflection of CEO income for the year, or "what they have to pay tax on," he says. (The tables in company proxies, meanwhile, use accounting figures that reflect what companies have to recognize on their balance sheets for paying out compensation. So the two figures are likely to differ.)
Topping the list is Blackstone Group (BX) CEO Stephen A. Schwarzman. But that dubious honor, admits Hodgson, is a fluke, in a way. Even though Schwarzman's 2008 "pay," by Hodgson's calculations, rang in at an eye-popping $702,440,573, that's largely due to Schwarzman having received a redistribution of his initial investment in the company.
As a founder of the private equity firm, Schwarzman's original investment is being paid back to him in four installments following the company's 2007 initial public offering. "You'd be hard-pressed to truly classify that as actual compensation," Hodgson admits, saying that Schwarzman's pay could end up as an asterisked note in future studies. Blackstone Public Affairs Managing Director Peter Rose agrees: "This is simply the vesting of his pre-existing ownership of the firm. His cash compensation in 2008 was a total of $350,000."
Energy Chiefs in Abundance No. 2 on Hodgson's list is Oracle's (ORCL) founder, Lawrence Ellison, whose massive exercise of 36 million stock options netted him more than $543 million, with total pay nearing $557 million. Rounding out the top five were Occidental Petroleum's (OXY) Ray Irani, Hess Corp.'s (HES) John B. Hess, and Ultra Petroleum's (UPL) John B. Watford, all of whom each received compensation, by Hodgson's calcuations, of more than $115 million.
In fact, 7 of the 10 highest paid chiefs were from the energy industry. That dominance, Hodgson says, is "almost entirely due to the runup in the price of a barrel of oil rather than necessarily that CEO running the company better than another similar [chief executive]," he says. (Oracle and Ultra did not immediately return calls seeking comment and Hess maintained that its CEO earned just $21 million last year. Occidental spokesperson Richard Kline noted that more than 91% of Irani's pay was tied to performance and that the company's shareholders have all received "substantial benefits" during Irani's tenure.)
The other four energy chiefs among the top 10 were Aubrey K. McClendon of Chesapeake Energy (CHK) ($114,286,867), Bob R. Simpson of XTO Energy (XTO) ($103,485,972), Mark G. Papa of EOG Resources (EOG) ($90,471,784), and Eugene M. Isenberg of Nabors Industries (NBR) ($79,333,079). None of the four companies immediately returned requests for comment.
Big Bonus at Chesapeake Particularly interesting, notes Hodgson, was the pay for Chesapeake's CEO, whose nearly $80 million bonus was the highest received by any of the CEOs in the Corporate Library's study, despite a big decline in Chesapeake's stock price for 2008. That bonus, Hodgson notes, will be reinvested in the company's "Founder Well Participation Program," or into new natural gas and oil wells explored by Chesapeake Energy. "This is Wild West stuff," Hodgson says of McClendon's unusual arrangement. Also extraordinary: McClendon was forced to sell 30 million company shares, or substantially all of his holdings, in October 2008, to satisfy margin loan calls.
The 10 highest paid CEOs weren't all equity-rich founders and don't all hail from energy companies. No. 10 on the Corporate Library's list was Michael S. Jeffries, the 17-year veteran CEO of teen retailer Abercrombie & Fitch (ANF). Jeffries, whose total realized compensation was nearly $72 million for 2008, received more than $2 million in perquisites, including $1.3 million in personal aircraft usage and associated tax gross-ups, the Corporate Library reports, along with a discretionary "stay bonus" of $6 million for remaining chairman and CEO through December 2008. (Abercrombie representatives were not immediately available to comment on the report.)
Hodgson calls the retention bonus "questionable" given the amount of stock Jeffries holds, saying "you have to question the decision-making of a board that's concerned enough to pay a retention bonus to someone who's been there for 17 years."
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