Georgia CEO pay not tied to success

More than half the CEOs at Georgia’s 25 largest public companies saw their compensation fall in 2009. Still, median pay — what the CEO in the middle of the earning range received — actually inched up less than 1 percent, according to a review of the companies’ most recent proxy statements by The Atlanta Journal-Constitution.

The average pay package of the Georgia CEOs surveyed, composed of salary, stocks, options and perks, inched down by the same percentage, to $7.2 million in 2009, the statements filed with the Securities Exchange Commission show.

Among the members of this exclusive club, compensation ranged from $1.2 million for Synovus banking chief Richard Anthony to $18.8 million for Coca-Cola CEO Muhtar Kent.

Mirant’s Edward R. Muller, whose pay package rose 8 percent to just over $6.5 million in 2009, earned the median pay of the group, meaning half of the 25 Georgia CEOs were paid less and half were paid more.

As the economy teetered for a time at the edge of disaster, many firms struggled to stay profitable and laid off thousands of workers.

But at the top of the organizational chart, Georgia companies did not move in lock-step. Some retreated, ratcheting back on executive bonuses or pay. Some kept their CEOs’ payoffs roughly flat. And some just cranked up the compensation. In many cases, the relationship between what CEOs were paid and how their companies performed was not clear.

Across U.S., pay falls

Overall, U.S. chief executives’ pay dropped for the second year in a row last year, according to The Corporate Library, an independent corporate governance firm in Portland, Maine. Median pay fell about 7 percent, according to the firm, to $1.4 million for the 800-plus companies reporting, a group including many smaller companies.

The pay drop among large companies in The Corporate Library’s sample — those listed in the Standard & Poor’s 500 index — was more dramatic: a 15.3 percent decline to $5.3 million.

Likewise, compensation expert Graef Crystal found that average CEO pay at the 271 major U.S. companies he studied dropped 4.7 percent in 2009, to $9.95 million.

The declines show that “performance has had an effect on pay,” said Paul Hodgson, senior research associate at The Corporate Library. But given the much larger declines in shareholders’ values and companies’ bottom lines in the last two years, “I wouldn’t say the link is all that effective.”

The wide range of corporate decisions on executive compensation last year are likely to provide plenty of fodder to both critics and proponents of pay practices. Many critics were angry about executive pay long before the recession, as the ratio between pay at the top and bottom ballooned over the past few decades. As unemployment reached its highest crests in a generation last year, the contrast was even starker.

Pay for the average Georgia CEO, for instance, was roughly 185 times that of the average U.S. worker’s annual pay of about $39,100.

Pay varies widely

None of the CEOs at Georgia’s top 25 companies were laid off last year. But over half saw pay cuts, albeit from what some might consider stratospheric levels. Others saw huge increases. Both raises and cuts often coincided with companies’ stock and profit performance, but sometimes didn’t. Some examples:

● Graphic Packaging posted the best shareholder return — a 204 percent gain after a 69 percent loss the previous year. Company CEO David W. Scheible’s pay rose 88 percent to $4.1 million.

● Shareholders’ wealth plunged 75 percent at Synovus Financial; CEO Anthony’s pay plunged 61 percent after the bank received a federal bailout that included caps on compensation.

● In the middle of the group was AGL Resources, whose shareholders lost 12 percent in 2008, then gained 23 percent last year. CEO John W. Somerhalder II got a 25 percent raise in 2009.

Larger companies such as those in Georgia’s top tier often pay executives much more, according to pay expert Crystal. “You should know that there is a significant statistical relationship between CEO pay and the size of the company he or she manages.”

But that correlation is not exact: Rock-Tenn, a Norcross paper packaging manufacturer, is the 18th largest public company in Georgia. But the company’s CEO, James A. Rubright, earned a total package larger than all but three of the state’s 25 top execs. Moreover, his exit package, or “golden parachute,” of $45.8 million was the third largest in that group.

Rock-Tenn Vice President John Stakel declined to comment but cited the company’s performance: Revenues during 2009 dipped, but earnings per share soared 169 percent, the best among Georgia public companies. And Rock-Tenn’s stock price has roughly tripled over the past five years.

Are such stratospheric pay packages fair? Some are and some aren’t, Crystal concluded in his study of 271 companies, including a handful in Georgia.

Linking executives’ pay to how the companies’ shares performed in comparison to the S&P 500 index, Crystal concluded that the CEOs at Newell Rubbermaid, Home Depot and Coca-Cola Enterprises were underpaid, while those at Aflac and Southern Co. were overpaid.

Does system work?

The smorgasbord of pay, bonus and golden parachutes offered executives is meant to achieve three ends, companies say: Attract the best possible executives, retain the ones the company has and motivate them to do their absolute best.

To get the numbers right, they name compensation committees from their boards of directors which, in turn, often hire consultants who study packages offered other executives in comparable companies and try to calculate where on the spectrum the company ought to fall.

The result, says one local compensation expert, is a system that mostly does what it is supposed to do.

The regular paycheck is just the starting point, said Joe Mallin, managing director and head of the Atlanta office of Pearl Meyer & Partners: “What you get paid for showing up and putting forth effort.”

If that effort doesn’t produce the right results, the rest of the package of bonuses and stock options are not going to kick in, Mallin said.

Yet setting up the incentives is not simple, he said: For what is the CEO truly accountable? How much of a change can he or she make? Do you compare the company’s success to the broad economy? To the industry? To similar companies? Or perhaps only to its own past?

“I spend a lot of time with lots of boards and I get the impression that they believe they are more pay-for-performance-oriented than in the past,” Mallin said. “But it’s hard determining pay for performance. Forecasting the future is inherently difficult and it seems like over the last 10 years it has become more difficult.”

Sharing the ‘pain’

One factor in compensation not denoted in any corporate proxy: public relations.

With the economy staggered, millions of Americans laid off from work and tens of millions fretting about that fate, many companies — whatever their own financial state — do not want their executives to look callous or greedy.

Daniel Amos, CEO of Columbus-based insurer Aflac, did not take the $2.8 million bonus he was due for his work in 2008.

“He had earned it and he declined it because we were in the midst of the financial crisis,” said Aflac spokeswoman Laura Kane. “He had met his benchmarks, but he said, ‘I cannot accept this in good conscience.’ ”

That left Amos with compensation worth $10.8 million. His package in 2009 — $13.6 million — was roughly what his previous year’s pay would have been had he taken the bonus.

“When times are bad, smart CEOs want shareholders and employers to see them have some pain,” said Kennesaw State’s Paul Lapides.

Of course, from the perspective of people struggling to get by, it’s hard to feel too bad for anyone who goes home with seven-figure compensation, bonus or not.

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How we got the story

For the AJC’s annual examination of executive compensation at Georgia’s largest publicly-traded companies, we looked at how total pay changed in light of last year’s CEO pay decline nationally. We also looked at how many executives’ wealth grew after they received larger stock and option grants during the low point of the stock market last year.

We compiled compensation data and estimated values of stock options and exit packages (“golden parachutes”) from the companies’ annual proxy statements. We gathered the companies’ stock performance and annual profit or loss figures for 2008 and 2009 to compare to the CEOs’ pay gains or losses. We also interviewed company officials and compensation experts to discuss how CEO pay packages are designed and whether they work properly.

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