Tag: Executive Compensation

UK CEO needs to work until 1pm on January 4th, 2019 to earn as much as what average employee earns in the entire year

Friday 4 January 2019 is “Fat Cat” Friday. In just three working days, the UK’s top bosses make more than a typical full-time worker will earn in the entire year, according to calculations from independent think tank the High Pay Centre and the CIPD, the professional body for HR and people development.

The average (median) full-time worker in the UK earns a gross annual salary of £29,574. “Fat Cat” Friday recognises that in 2019 the average FTSE 100 CEO, on an average (median) pay packet of £3.9 million, only needs to work until 1pm on Friday 4 January 2019 to earn the same amount. The £3.9 million figure was calculated by the CIPD and the High Pay Centre in their 2018 analysis of top pay and it marks an 11% increase on the £3.5 million figure reported in their 2017 analysis. The pay increase means that FTSE 100 CEOs, working an average 12-hour day, will only need to work for 29 hours in 2019 to earn the average worker’s annual salary, two hours fewer than in 2018.

The CIPD and High Pay Centre are highlighting the problem of rising executive pay in a new report launched today. The report, RemCo reform: Governing successful organisations that benefit everyone, identifies the shortcomings of the remuneration committees (RemCos) charged with setting executive pay and calls for them to be significantly reformed. In particular, it highlights:

  • the myth of ‘super talent’ as a factor that continues to drive excessive pay with one remuneration committee chair commenting: “It’s nuts… and nuts has become the benchmark”.
  • how there needs to be much greater diversity among those responsible for setting CEO pay, both in terms of their ethnicity and gender, for example, but also their professional backgrounds and expertise in order to combat ‘group think’.
  • how current pay mechanisms contribute to the problem of high pay. In response, the CIPD and High Pay Centre recommend replacing long-term incentive plans (LTIP’s) as the default model for executive remuneration with a less complex system based on a basic salary and a much smaller restricted share award. This would simplify the process of setting executive pay and ensure that pay is more closely aligned to executive performance.

The CIPD and High Pay Centre are calling for RemCos to ensure that CEO pay is aligned more appropriately to rewards across the wider workforce and that their contribution is measured on both financial and non-financial measures of performance.

Whole story here.

Merrill’s Thain wants a $10mn bonus: What do you think?

Merrill Lynch & Co Chief Executive John Thain has suggested to directors that he get a 2008 bonus of as much as $10 million, but the battered company’s compensation committee is resisting his request. (…)

Thain has said he deserves a bonus because he helped avert what could have been a much larger crisis at the firm, people familiar with his thinking told the WSJ.

Members of Merrill’s compensation committee agree with Thain that the takeover is in shareholders’ best interest, but believe it would be foolish to ignore strong public sentiment against large compensation packages, the paper said, citing people familiar with their thinking.

Committee members are also weighing the fact that other Wall Street firms, including Goldman Sachs Group Inc, which did better than Merrill this year, are not giving out bonuses to top executives, the paper said.

via  Yahoo! News.

Superstar CEOs underperform

CEO superstars aren’t all they’re cracked up to be, argue two UCLA economists in a paper posted to the National Bureau of Economic Research’s website this week

After receiving awards from publications like Business Week and other organizations,

[superstar] CEOs extracted more money from their companies — mostly in the form of stock and options — than their nonwinning counterparts. But in comparison, their companies’ returns and stock performance suffered. (thanks WSJ)

Subprime mortgages: you wreak what you sow

The havoc on Wall Street following the collapse of the subprime-mortgage market boils down to a simple truth: for years, lots of very smart people took lots of very foolish risks, betting borrowed billions on dubious mortgage derivatives, and eventually the odds caught up with them.But behind that simple truth is a more surprising one: the financial whizzes made bad decisions in part because that’s what they were paid to do. (The New Yorker)

If the measure of performance/success is quantitative, can we expect anything else?

“Doing the same thing over and over again and expecting different results.” The very definition of insanity.

Income gap doubles from 1980: Top earns 440 times more

Income inequality grew significantly in 2005, with the top 1 percent of Americans — those with incomes that year of more than $348,000 — receiving their largest share of national income since 1928, analysis of newly released tax data shows.The top 10 percent, roughly those earning more than $100,000, also reached a level of income share not seen since before the Depression.

While total reported income in the United States increased almost 9 percent in 2005, the most recent year for which such data is available, average incomes for those in the bottom 90 percent dipped slightly compared with the year before, dropping $172, or 0.6 percent.

The gains went largely to the top 1 percent, whose incomes rose to an average of more than $1.1 million each, an increase of more than $139,000, or about 14 percent.

The new data also shows that the top 300,000 Americans collectively enjoyed almost as much income as the bottom 150 million Americans. Per person, the top group received 440 times as much as the average person in the bottom half earned, nearly doubling the gap from 1980. (New York Times)

Fannie pay

Fannie Mae is withholding at least 36 bonuses from current and former officials, which in the aggregate are worth $44.4 million. According to a February 20 regulatory filing, the board of directors announced that Fannie Mae will not make bonus payouts under the mortgage lender’s long-term incentive performance share program that dates back to award cycles that started in 2001.

The company, which generates $52 billion in revenues, is still working through a massive $10.8 billion accounting scandal stemming from its derivatives and hedging activities. Last year, the company announced that it was spending more than $1 billion to prepare restatements covering the past few years.

The restatement and related regulatory costs amount to roughly $850 million, while costs associated with the preparation of financials and related regulatory filings for periods after 2004 are estimated to exceed $200 million. In addition, the lender announced in May that it agreed to pay $400 million to settle charges related to its accounting problems with the Office of Federal Housing Enterprise Oversight (OFHEO) and the Securities and Exchange Commission. (CFO.com)

Lloyd Who?

Goldman Sachs Group Chairman and Chief Executive Lloyd Blankfein received more than $54.3 million in cash, stock and options last year after leading Wall Street’s most profitable investment bank for just six months.

Blankfein, 52, named CEO in June after Henry “Hank” Paulson quit to become U.S. treasury secretary, earned $600,000 in salary, a cash bonus of $27.2 million, and $261,906 for such perks as a car, driver and financial counseling services, according to a proxy statement filed with the Securities and Exchange Commission Wednesday.

He also received $15.7 million in restricted stock, options to purchase 209,228 shares with a present value of $10.5 million, and $82,876 in “other” compensation, including company contributions to his pension plan, term life insurance and medical plans. (CNNMoney.com)

Commerce Secretary: Judge and Party

The system used to set executive pay at U.S. companies works and does not need intervention from the federal government, the commerce secretary. Carlos Gutierrez, who served as chief executive of food group Kellogg for five years before being appointed commerce secretary in 2004, said in an interview with Reuters that corporate mechanisms for setting pay are fine as long as compensation packages are disclosed and tied to performance.

“The solution here is not to have the federal government start getting into compensation control,” Gutierrez said. (…)

Says…

Gutierrez (…) penned a separation deal with Kellogg in 2004 that included pension benefits starting in 2009, lump-sum payouts under two Kellogg investment plans and his 2004 annual bonus. The pension payments will total $1.3 million a year, according to the deal. (CNNMoney.com)

Awakening the directors within

With the ouster of Home Depot‘s Bob Nardelli and his resultant compensation package that was valued at about $210 million and Pfizer‘s Henry A. McKinnell’s which came to almost $200 million, it has brought the spotlight on excessive compensation packages for CEO’s.

So far this year it looks like it may become the biggest issue at the annual meetings of public companies. According to Donald Delves, a Chicago-based compensation consultant one positive outcome of all of this is that “There’s a sort of silver lining to the whole Nardelli, Home Depot thing. At least the shareholders finally spoke up.” (managersrealm.com)

Two thoughts:
1. It’s about time!
2. And what of the Directors who represent the interests of shareholders?