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Base salaries, total compensation reach new heights for CEOs at publicly traded companies across Northeast Ohio
By Jim Mackinnon Beacon Journal business writer
Published on Monday, Sep 24, 2007
Being the chief executive officer of a publicly traded company in Summit County and surrounding areas certainly pays well.
Try nearly $14 million at the high end at FirstEnergy Corp., with the lowest- paid CEO getting $779,000 in 2006 at specialty insurer National Interstate of Richfield.
That's more than just base salary, though local CEO salaries are nice, too, according to proxy statements filed with the Securities and Exchange Commission by the largest publicly traded companies based in Summit County and selected others nearby in Northeast Ohio.
CEO total compensation has gone up in recent years, helped in large part by a stock market strongly bouncing back from the bursting of the tech bubble, the 9/11 terrorist attacks and a mild recession in the early part of the decade. In addition to salaries and bonuses, total compensation includes such items as stock options and other equity-related benefits that are tied to how well a company performs financially, meets internal targets and creates shareholder value.
High pay packages have led to increased scrutiny by shareholders, advocacy groups and others.
Corporate critics such as the Institute for Policy Studies and the group United for a Fair Economy in late August issued a joint report saying that chief executives at 386 of the largest U.S. corporations were paid an average of $10.8 million in 2006.
That works out to 364 times the average pay of American workers, the groups said in their 14th CEO compensation survey, titled ''The Staggering Social Cost of U.S. Business Leadership.''
Or, to put it another way, the report said the average U.S. chief executive at those large companies was paid as much in one day in 2006 as the typical U.S. worker including part-timers made the entire year, $29,544.
Closer to home, by comparison, the median earnings for a Summit County male working full-time in 2006 was $43,325, according to the latest U.S. Census Bureau figures. Full-time female workers in the county had median earn ings of $31,851. About 2.4 percent of all households in Summit County 5,280 out of 221,148 total had income and benefits of $200,000 and higher last year. The county's average household income was $59,794.
Sky-high CEO pay has its strong defenders, too.
Count former Clinton administration Secretary of Labor Robert Reich among those saying CEOs deserve the compensation they receive because they deliver results.
''CEO pay has risen astronomically over the (last four-decade) interval, but so have investor returns,'' Reich wrote in a Sept. 14 column in the Wall Street Journal. ''Boards are willing to pay more and more for CEOs and other top executives because their rivals are paying more and more for them. Former Home Depot CEO Robert Nardelli to the contrary notwithstanding, the pay is usually worth it to investors.''
Nardelli resigned from Home Depot in early January with a ''golden parachute'' severance package valued at $210 million, even though the company had a shaky financial performance under his leadership.
He was subsequently hired in August to run the new Chrysler LLC, which was bought this year by private equity firm Cerberus Capital Management.
Compensation data
Shareholders have increasingly demanded that corporate boards better disclose top executive pay packages. The federal government responded by requiring publicly traded companies to put additional compensation information in their annual filings with the SEC; those additional details began showing up this year.
In the case of Akron's two largest companies (based on revenues), top executives benefited by strong, even record-setting, financial performances.
According to those proxy filings, FirstEnergy CEO Anthony ''Tony'' Alexander received $13.8 million in compensation in 2006, under a formula developed by the Associated Press to address the new SEC disclosures. The AP figures differ from totals listed in the 2006 SEC documents. AP consulted accounting experts to derive its own way of totaling the worth of stock options, incentives and other compensation. Alexander's pay package was fueled by the utility's strong financial performance the CEO told shareholders at FirstEnergy's annual meeting this year that 2006 was the company's best year financially and operationally. FirstEnergy shares rose 27.3 percent in 2006, including reinvested dividends.
Goodyear chief
Robert Keegan, Goodyear Tire & Rubber Co.'s chairman and CEO, was paid $11.7 million in 2006 under the AP's calculated compensation formula; the Goodyear proxy put his total compensation at $17.3 million. Because Keegan was promoted to CEO, he has been widely credited with leading the turnaround at Goodyear, which flirted with near bankruptcy in 2003. Goodyear shares rose nearly 21 percent in 2006.
Coming in third was Henry Meyer, head of Cleveland-based KeyCorp, with more than $8.2 million in compensation.
Rounding out the top five were William D. Zollars and James W. Griffith. Zollars is the head of Kansas-based trucking company YRC Worldwide Inc., which owns Roadway Corp. in Akron. Zollars received $7.3 million in compensation. Griffith, the CEO of Timken Co. in Canton, was paid $5.6 million.
Mercer Human Resource Consulting in New York City reported this year that CEO pay has continued to rise despite shareholder efforts and additional SEC-required disclosure.
Pay to performance
Corporate directors in recent years have increasingly been trying to tie chief executive pay to company performance, said Ed Steinhoff, head of Mercer's executive compensation practice in Detroit.
''If we were to go back in time, there would have been a weaker correlation,'' he said. ''Over the last several years, as CEO pay has been headline news, compensation committees are becoming more thoughtful in aligning pay with performance.''
In addition, companies are taking more of a ''portfolio'' approach to long-term compensation instead of offering just stock options to CEOs and other top executives, he said. The intent is to align the compensation with long-term shareholder interests as well as with corporate long-term performance goals, he said.
There still is a perception by some that CEO pay is out of control, Steinhoff said, especially with studies that show CEO compensation as a multiple of what employees earn.
With top executives, companies need to pay a competitive rate to attract and retain talent, he said, and they often err on the side that paying more is better than less.
Mercer's studies of executive compensation show that between 2005 and 2006, CEO pay increased on average by less than 10 percent, he said.
''That is not as much of an increase as we thought,'' he said. ''There is very real pressure on compensation committees.''
Shareholders not clear
The SEC's new disclosure guidelines that went into effect this year likely will be tweaked, Steinhoff said. Shareholders often still are not clear on how much top executives are paid, and how that pay was determined, even with the additional information provided in proxies, he said.
Mercer research shows that median CEO total direct compensation in 2006 salary, bonus and long-term incentives rose 8.9 percent, while corporate net income was up 14.4 percent compared to 2005, according to its 2006 survey. Mercer's annual survey, based on proxy filings of 350 large public companies, is published by the Wall Street Journal.
The Mercer survey showed median compensation of $8.2 million for CEOs of large companies.
Mercer noted that there were more than 60 proposals for a ''say on pay'' put up for votes at annual shareholder meetings this year, seeking to put executive compensation to a non-binding shareholder vote.
''The big story this year is that, as predicted, long-term incentives are being linked to performance,'' according to Mercer.
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.
Being the chief executive officer of a publicly traded company in Summit County and surrounding areas certainly pays well.
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