After several tough years on Wall Street, investors in Georgia’s largest companies are finally starting to get paid back for their troubles.
But the corporate captains at those same companies have been getting paid much better.
Chief executives’ total compensation at Georgia’s 13 largest companies rose almost 29 percent over the past five years — more than double the growth of shareholders’ returns at those companies. By comparison, a shareholder would have reaped a 12.9 percent return during the same five-year period, after investing equally in the 13 companies, including re-invested dividends.
Likewise, CEO pay at the companies on the Fortune 500 list rose four times faster than the firms’ combined profits, which squeaked up barely 7 percent in five years.
Coca-Cola CEO Muhtar Kent had the highest compensation last year — $29,115,573, mostly in cash and stock-related pay. That was a 17.5 percent raise over his 2010 pay.
Newell Rubbermaid, which saw its profits and stock price fall dramatically over the past five years, awarded the biggest jump in pay last year when it hired Michael B. Polk as its new CEO last June.
Polk’s $18,772,721 compensation package included a big stock award to replace unvested stock he gave up at his previous employer. It was a 58 percent jump over the 2010 pay of his predecessor, Mark Ketchum.
Locally and nationally, big shareholder-owned companies are printing such billboard-size paychecks as many employees continue to struggle with meager pay raises. For example, the average annual paycheck in Georgia has risen less than 15 percent since 2006, to $42,590 last year, according to the Bureau of Labor Statistics.
Critics say the gap between CEO and worker pay is unjustified.
“You have to ask yourself, how much is enough?” said Vineeta Anand, with the AFL-CIO’s office of investments. According to the union group, CEO pay at S&P 500 companies rose from 343 times the average worker’s pay in 2010 to 380 last year.
“You have to question why does one person have to have so much of the company’s resources,” said Anand.
Reasons for the pay
Proponents of current executive pay practices say they are designed to retain the most talented executives and to encourage them to focus on making sure their companies are healthy and that shareholders are well rewarded over time. The complex compensation packages include an array of salaries, bonuses, perks, pensions and stock-related awards. They are supposed to provide a core pay level, bonuses for meeting short-term goals and a bigger chunk of awards that only pays off big if the company is profitable and the stock price goes up.
But it hasn’t worked that way, critics say, during the past five years of extreme ups and downs of the stock market and the economy. CEO pay fell a bit as the market was crashing, but not as much as most folks’ 401(k) retirement plans. Executive pay has rebounded considerably since, while most peoples’ paychecks have lagged.
“While most investor portfolios have yet to fully recover from the 2008-2009 market collapse, top management pay levels resumed their upward trajectory in 2010,” noted Institutional Shareholder Services.
The shareholder watchdog firm, a key adviser to pension funds and other big investors, generally raises red flags if executives’ incomes aren’t closely tied to company performance measures, such as profit and sales growth. This year, ISS also began grading companies based partly on how CEO pay raises over five years compare to shareholder returns over the same period.
NCR Corp., the Duluth technology company, earlier this month tweaked CEO Bill Nuti’s pay package after ISS criticized it as being inadequately linked to profit or other performance goals. The firm later gave NCR a passing grade after it added more conditions to Nuti’s stock award, such as producing better shareholder returns than its peers.
Although ISS gave passing grades to other big Georgia firms this year, most have had trouble keeping executive pay, profits and shareholder returns on the same trajectory. In fact, some of the biggest jumps in CEO pay over the past five years were at companies where shareholder returns and profit growth lagged far behind.
Since the end of 2006, shareholders lost money and profits fell dramatically at NCR, Newell Rubbermaid, SunTrust and Mohawk Industries — even as CEO pay rose significantly.
The same was also true for Delta Air Lines during a shorter period — since it emerged from bankruptcy in 2007 through 2010, the most recent year for which it has reported pay figures.
CEO pay raises during the 2006-2011 period outstripped profit growth or shareholder returns, or both, at all but three of the companies: Coca-Cola, Aflac and Georgia Power’s parent, Southern Co.
‘Say on pay'
Always a controversial topic, CEO pay is likely to draw extra scrutiny this year. This spring’s annual shareholder meetings are occurring as a presidential campaign and the “Occupy Wall Street” movement have heightened debate over the power, responsibilities and tax payments of the richest Americans.
At those shareholder meetings, companies are holding their second so-called “say on pay” votes on their executives’ compensation. The non-binding votes were mandated by the Dodd-Frank financial reform legislation that was enacted after the 2007-2009 financial crisis, which some critics say was exacerbated by executive pay plans that encouraged too much risk-taking.
So far, most companies’ executive pay packages have gotten a thumb’s up in the “say on pay” votes. Nationwide, shareholders nixed pay plans at 41 firms last year — including Atlanta homebuilder Beazer Homes — according to ISS. Five companies have gotten rejections so far this year, including the banking giant Citigroup earlier this month.
But even though the overwhelming majority of companies win approval from shareholders, “say on pay” is having an effect on executive pay, experts said.
“It’s certainly increased communication between companies and their investors,” said Aaron Boyd, director of research at Equilar, an executive pay data firm. More companies, he said, are tying cash and stock awards to specific performance targets, disclosing more detail about those targets and eliminating controversial items, such as so-called tax “gross-ups” to pay executives’ income taxes on perks.
Shareholder scrutiny
Anand, with the AFL-CIO, said union groups and public pension funds have targeted some companies that had significant opposition in last year’s “say on pay” votes by promoting shareholder proposals to rein in executive pay.
One example, she said, was Columbus-based credit card processor Total System Services, which was hit this year with four tentative shareholder proposals for this year’s annual meeting.
The company was “very responsive,” she said, agreeing to measures such as limits on golden parachutes and tax gross-ups, and a requirement that executives hold at least half of their stock awards until retirement. The shareholder proposals have since been withdrawn, she said.
“Where [say on pay] hasn’t had the kind of impact ... is on the level of CEO pay,” Anand said.
Meanwhile, business and labor groups are battling over another rule included in the same Dodd-Frank law, which would require companies to report the ratio of their CEOs’ pay to their median workers’ pay. The Securities and Exchange Commission has yet to issue guidelines for that rule to take effect.
Businesses complain that rule would cause too much work and produce little beneficial information for shareholders.
“Companies really don’t want to do it because of the complexity involved in calculating that number,” said Boyd.
Proponents say companies don’t want to do it because it will reveal huge pay disparities that will increase public pressure on companies to throttle CEO pay raises.
“They’re fighting this rule tooth and nail,” Anand said.
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What the top Georgia CEOs earn
CEO pay at Georgia’s 13 largest publicly traded companies grew twice as fast as total shareholder return in the last five years, and four times as fast as the firms’ profits. The figures compare CEO pay, annual profits and total shareholder return, including re-invested dividends, for the five years ending in 2011.
Company CEO pay change Cumulative shareholder return Company’s profit change
AGCO Corp. 210.3% 38.9% 998.8%
Newell Rubbermaid 147.7% 35.8% -67.5%
Delta Air Lines* 141.5% -45.2% -63.2%
Coca Cola Enterprises 119.6% 99.3% 165.5%
Genuine Parts Co. 114.0% 55.7% 18.9%
UPS 111.7% 12.9% -9.5%
Home Depot 69.9% 22.6% -32.6%
NCR Corp. 67.8% -19.2% -86.1%
Mohawk Industries 45.6% -20.1% -61.8%
Southern Co. 24.2% 60.1% 41.1%
SunTrust Banks 22.6% -76.0% -69.4%
Aflac 3.6% 5.7% 32.4%
Coca-Cola Co. -10.0% 67.9% 68.7%
* Delta emerged from bankruptcy in 2007 and hasn’t reported 2011 pay figures. Its comparisons are for the 2007-2010 period.
Sources: Company filings and Bloomberg
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