2 DECCANHERALD
Avenues
In executive pay, a rich game of thrones
Natasha Singer
I
s any CEO worth $1 million
a day? That’s roughly
$42,000 an hour. Or $700
a minute. Or $12 a second.
Think of it this way: In the
time it took to read those
words, you could’ve pocketed
$100. Finish this article and,
well, you do the math.
At Apple, the answer to that
question is an emphatic yes,
and then some. Not since Steve
Jobs has a chief executive at
Apple, or any other public
American corporation, for that
matter, been as richly reward-
ed in stock as Timothy D Cook,
who succeeded Jobs as chief
executive last August, a few
months before the latter died.
Cook was paid a cash salary
of roughly $900,000 in 2011.
On its own, that would have
been a ho-hum paycheck for a
top American CEO in recent
years.
But then came a wild extra,
a one-time award, in the form
of Apple stock. It was initially
worth a staggering $376.2 mil-
lion. As of the end of last week,
it was valued at roughly $634
million, reflecting Apple’s soar-
ing share price.
Many credit Cook, along
with Jobs, for Apple’s recent
success. And the company is
quick to note that Cook’s pay
package extends over 10 years.
One-half of his stock is sched-
uled to vest in 2016, and the
other in 2021, provided that
Cook still works for Apple. And,
at a time when some investors
seethe over far smaller pay-
checks, a mere eight figures is
relatively commonplace for top
chief executives these days, Ap-
ple’s shareholders are hardly
up in arms over the magnitude
of Cook’s reward. To the con-
trary, a vast majority voted in
favour of it.
Of course, most of us can’t
begin to wrap our heads
around pay figures like these.
An American with a bachelor’s
degree, after all, typically
makes $2.3 million, not in a
year, but over a lifetime, ac-
cording to a recent study from
Georgetown University.
Data on CEO compensation
in 2011, albeit preliminary, con-
firm what many of us already
know: the top brass generally
do much, much better than the
rest of us, whether times are
good or bad. After the ups and
downs of the recent boom-bust
years, pay among the 100 best-
paid chief executives at big
American corporations held
fairly steady in 2011, according
toEquilar, which reviewed
CEO compensation for The
New York Times. Here are
some numbers worth knowing:
• Among the 100 top-paid
CEOs, overall pay last year rose
a scant 2 per cent from 2010.
• The median chief executive
in this group took home $14.4
million, compared with theav-
erage annual American salary
of $45,230.
• In all, the combined com-
pensation of these 100 CEOs
totaled $2.1 billion, the rough
equivalent of the estimated an-
nual economic output of Sierra
Leone.
The full picture won’t be-
come clear until June or so,
when corporate proxy state-
ments will detail the full range
of executive compensation. But
data available as of March 30
suggests that a new elite is
emerging in corporate Ameri-
ca: CEOs who make more than
$10 million a year.
Granted, these are chief ex-
ecutives of publicly traded
companies, the kind of busi-
nesses anyone can buy into on
the stock market. Next to pay
in the rarefied realms of private
American capitalism, the mul-
titrillion-dollar world of hedge
funds, private equity and the
like, these CEOs might seem
like pikers. Top hedge fund
managers collectively earned
$14.4 billion last year.
But the Equilar figures also
hint at the myriad ways execu-
tive compensation is as tailored
as a bespoke suit. It is those cus-
tom details - the one-off huge
stock grants, in Cook’s case, the
token $1 annual salaries or
evaporating bonuses in others
- that can turn dull proxy state-
ments into page-turners.
Cook is an extreme example
of this phenomenon. He is, ex-
perts agree, an outlier, the only
chief executive on the Equilar
list to pull down a nine-figure
paycheck. His stock award was
so valuable, even at its initial
price, that his total compensa-
tion eclipsed that of the next
nine CEOs combined. Those
nine included Lawrence J Elli-
son of Oracle, at $77.6 million,
a perennial on the best-paid
list, and Philippe P Dauman, of
Viacom, at $43.1 million.
Aaron Boyd, the director of
research at Equilar, the execu-
tive compensation data firm
based in Redwood City, Cali-
fornia, that has reviewed exec-
utive compensation trends an-
nually for Sunday Business,
said Cook’s pay was unique.
“The amount he got was his-
toric to such a degree that it
skews the numbers,” Boyd said.
But Apple was not the only
special case. Consider J C Pen-
ney, whose new chief executive,
Ronald B Johnson, came in
third on the top 100 list, with
total compensation of $53.3
million.
Why? Last year, Johnson left
his position as Senior Vice-
President of retail at Apple,
along with Apple stock worth
$101 million at the time that
had not yet vested. So, as part
of his pay package, J C Penney
gave Johnson a one-time stock
award worth $52.6 million. (As
of the end of last week, his Ap-
ple stock would have been
worth about $159 million. His
Penney stock was worth $58
million.)
Last year’s other top earners
included Stephen I Chazen
($31.7 million) of Occidental
Petroleum; Gregory Q Brown
($29.3 million) of Motorola So-
lutions, and Howard D Schultz
($16.1 million) of Starbucks.
Analysts say the uptick in
CEO pay is a sign that corpo-
rations are returning to busi-
ness as usual after the last re-
cession. When the economy
soured, executive pay fell
sharply at many companies,
though not as much as many
ordinary Americans might
have hoped. With the recovery
in 2010, pay then skyrocketed.
Now it’s stabilising, suggesting,
perhaps, that corporate boards
see more predictable economic
IT sector slows down hiring to cut costs
I
nformation technology (IT)
sector in the country wit-
nessed steep decline in hir-
ing activities as most compa-
nies embraced cost cutting
measures to tide over uncer-
tain economic conditions, say
experts.
“Hiring activities have seen
a dip of 29 per cent in IT and
ITeS sectors in May 2012 from
the preceding month,” MyHir-
ingClub.com CEO Rajesh Ku-
mar said.
However, he said that other
industries have increased re-
cruitment activities by 13-15 per
cent in May as compared to
April. HR experts attributed
the sluggish job scenario in the
IT and ITeS space to cost cut-
ting move and expects that the
same trend would continue for
few months.
“Recruitment activity in IT
decline, but some skills still in
big demand. Cost cutting and
project outsourcing is one of
the reason for decline in hiring
activity in this sector,” Sat-n-
Merc Manpower Consultant
Director Prachi Kumar said
about the job prospects in the
IT sector.
She further said, “Uncertain-
***123
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times ahead. “On average, pay
levels have moderated,” said
Doug Friske, the global head
of executive compensation con-
sulting at Towers Watson, a hu-
man resource consulting firm
in New York. “Now we are see-
ing normalisation.”
Corporate boards also seem
to be acknowledging criticism
of executive pay from share-
holders and the public. Some
companies have reduced dis-
cretionary bonuses and linked
executive pay more closely to
performance metrics like rev-
enue and share price. Last year,
companies also began to hold
shareholder votes on executive
pay packages, so-called “say on
pay” polls required by Dodd-
Frank, the Wall Street reform
law.
Corporate America hasn’t
entirely embraced reform.
Some companies and industry
groups have asked the Securi-
ties and Exchange Commission
to jettison, or at least delay put-
ting in place, a provision in the
Dodd-Frank law that would re-
quire companies to disclose the
ratio of CEO pay to median em-
ployee pay, the kind of statistic
that could grab headlines in
this era of the 1 per cent.
The 100 highest earners of
2011 have one thing in com-
mon, however. Although they
could all rank among the 1 per
cent - households that bring in
$380,000 or more - they actu-
ally belong in a more exclusive
bracket: people with more than
$10 million in pay.
But the CEO wealth is hardly
trickling down. During the
2010 recovery, the top 1 per
ty in economic scenario and po-
litical conditions have also af-
fected hiring activities. We are
expecting the same trend will
continue for few more
months.”
Echoing the view, Rajesh Ku-
mar said, “A weaker rupee
Wednesday, June 13, 2012
cent captured 93 per cent of
the income gains, while the in-
comes of the 99 per cent essen-
tially remained flat, according
to a study by Emmanuel Saez,
an economics professor at the
University of California, Berke-
ley.
In 2011, the median weekly
earnings for full-time wage and
salary workers in the United
States rose only about 1 per
cent, to $756, from $747 in
2010, according to data from
the Bureau of Labour Statis-
tics. In constant dollars, wages
fell a little more than 2 per cent.
The C-suite and the shop
floor have never been further
apart, said Brandon Rees, the
deputy director of the AFL-
CIO office of investment.
“American workers are hav-
ing to make do with less,” Rees
said, “while CEOs have never
had it better.”
Equilar analysed base
salaries, cash bonuses, perks,
stock awards and options for
the 100 most highly compen-
sated executives at public com-
panies that had revenue of
more than $5 billion and had
filed their proxy statements by
March 30. One standout on
the list was Vikram S Pandit,
the chief executive of Citi-
group. After the company was
bailed out by taxpayers in
2009, Pandit pledged to work
for $1 a year until the bank re-
turned to profitability.
Citigroup has since repaid
its bailout money, and the
board has restored Pandit’s
pay. It amounted to $14.9 mil-
lion last year, putting Pandit in
45th place on Equilar’s list. Cit-
igroup’s longtime shareholders
are still waiting for their pay-
day: while the company’s net
income rose 3 per cent last
year, Equilar said; its share
price fell 44 per cent.
New “say on pay” votes,
though non-binding, have
caused some companies to
make a greater proportion of
pay contingent on chief execu-
tives’ achievement of rigorous
performance goals. Some com-
panies have even eliminated
stock option awards — the
grants of stock that executives
are able to buy at a fixed price
— in favor of full-value stock
awards that vest only if execu-
tives meet specified goals, said
Carol Bowie, head of Americas
research at Institutional Share-
holder Services, a proxy con-
sulting firm for institutional in-
vestors.
“We are definitely seeing a
trend toward more perform-
ance-based pay,” Bowie said. “It
remains to be seen if perform-
ance follows.”
At Hewlett-Packard, for in-
stance, shareholders voted in
March 2011 to reject the com-
pany’s executive compensation
plan. The board eventually re-
sponded to criticism over the
company’s multimillion-dollar
executive severance packages.
The departure last year of Léo
Apotheker, who had served as
CEO for 11 months, for exam-
ple, cost HP shareholders
about $30 million, according
to a report from ISS.
When HP’s board subse-
quently chose Meg Whitman
as the new CEO, it took some
steps to mollify shareholders
by giving her a performance-
based compensation package.
The board offered her a base
salary of $1, no cash bonus, no
would help the Indian software
exporters with higher repatri-
ated earnings, as the largest
proportion of their revenues
comes from the US.
“But still IT companies had
slow down their hiring activi-
ties in the month of May 2012. PTI
»
stock awards and a grant of op-
tions to purchase 1.9 million
shares of HP stock.
Although that amounted to
compensation of about $16.5
million, ranking Ms. Whitman
35th on the Equilar list, she will
have to meet certain conditions
for all of the stock to vest. If she
remains employed at H.P., she
can exercise her option to buy
100,000 shares each year for
the next three years. In addi-
tion, 800,000 shares will vest
if HP’s share price increases by
20 per cent under her steward-
ship, and another 800,000 will
vest if the stock increases by 40
per cent.
The rest of the top earners
list reads like an A-list of cor-
porate titans, from Robert A.
Iger of Walt Disney, ranked sev-
enth, with pay of $31.4 million,
to William C Weldon of John-
son & Johnson, ranked 13th,
with $23.4 million. (Weldon
plans to step down as chief later
this month; he will stay on as
chairman.)
Rupert Murdoch of the
News Corporation took 10th
place, with compensation of
$29.4 million, a 75 per cent in-
crease from 2010. In a year
when the News Corporation
and Murdoch’s son James were
embroiled in a scandal over
phone hacking, the elder Mur-
doch earned a cash bonus of
$12.5 million. That is because
the company did well financial-
ly, analysts said, even if its rep-
utation plummeted.
“Financially, they exceeded
their target,” said Boyd of Equi-
lar. “But from a publicity stand-
point, News Corporation has
taken a hit over the last year
and a half.”
Also among the top 10,
David M Cote, the chief execu-
tive of Honeywell, received to-
tal compensation of $35.3 mil-
lion, putting him in fifth place.
Honeywell tends to dole out a
huge bonus every other year.
Last year, Cote’s bonus was
$23.3 million.
Clarence P Cazalot Jr, the
chief executive of Marathon
Oil, received $29.9 million, an
increase of 239 per cent from
the previous year. That put him
in eighth place. Cazalot re-
ceived a cash bonus of $21.8
million, the second-highest
cash bonus, a majority of which
came from accelerated payouts
for spinning off a company
unit, the Marathon Petroleum
Corporation.
Next, Alan R Mulally, who
helped turn around Ford, took
ninth place, with compensation
of $29.5 million. Although
Ford’s share price fell nearly
36 per cent last year, its net in-
come increased 208 per cent.
Elsewhere, Fabrizio Freda,
the chief executive of the Estee
Lauder Companies, made a big
leap.
He ranked 18th on the Equi-
lar list, up from 54th place on
a comparable list in 2010. He
received compensation of near-
ly $21 million in 2011, a 51 per
cent increase. Freda is the first
real outsider, and only the sec-
ond person outside the Lauder
family, to run the beauty prod-
ucts empire. Under his stew-
ardship last year, Lauder’s net
income increased 47 per cent,
while its total shareholder re-
turn, the change in share price
plus dividends paid, increased
90 per cent.
The New York Times
Major reason behind this is
companies are going to reduce
the bench size and award more
jobs on contact basis to save
costs for future inflation,” he
added. In terms of geographi-
cal analysis, Bangalore has
seen a slump of 31 per cent in
hiring from previous month
and a decline of 18 per cent
from the year-ago period.
Besides, Delhi has witnessed
a drop of 16 per cent last month
compared to April followed by
Chennai (17 per cent), Mumbai
(14 per cent) and Hyderabad
(12 per cent).
“As we had expected in be-
ginning of this financial year
hiring is not on the same pace.
Last month was not overall
good for hiring activity in the
IT sector as the industry is
more scared about their prof-
itability in this financial year.
“They had started doing cost
control via several activities
and that the reason several or-
ganisations from this industry
had put their openings on hold
till further notice. Might be this
will be continue for some more
period,” Psyche Panacea Direc-
tor Vikas Vats said.