The median pay for chief executives at North Carolina’s 50 largest public companies fell last year, as companies shifted more of their compensation from cash to long-term stock awards and boards of directors set tougher targets for executive bonuses.
But three CEOs drew large payouts even after leaving companies with poor results. And executive perks, including car allowances, country club memberships and personal use of corporate aircraft, continued to rise.
The Charlotte Observer’s annual analysis of CEO pay at the state’s biggest companies found the median pay package fell more than 8.6 percent, to $3.6 million, last year. The median is a midpoint, with half the CEOs bringing home more and half less.
CEO pay ranged from a high of $12.6 million for Steven Tanger of Tanger Factory Outlet Centers to a low of $284,916 for Swisher’s interim CEO, Thomas Byrne.
Meanwhile, the median wage for workers in North Carolina ticked up 1.4 percent in 2012 – less than the rate of inflation – to $31,540. The median CEO pay package totaled more than 114 times that. That’s higher than five years ago, when the median pay for North Carolina’s chief executives totaled $2.9 million, or 100 times the median worker’s annual wages.
Executive pay sparked public anger after the recession and financial crisis. The government limited executive pay at firms that received federal bailout money. And under the 2010 Dodd-Frank law, companies must let shareholders take non-binding votes on whether to approve CEOs’ pay.
Now boards of directors are setting pay more carefully, looking to tie compensation more to performance, experts say. Companies also are spending more time explaining to shareholders why they pay their CEOs as much as they do.
And though most companies pass the so-called say-on-pay votes, those that failed are overhauling their pay practices.
One of those was Chiquita Brands International, which moved to Charlotte last year. Shareholders rejected the company’s compensation for former chief executive Fernando Aguirre. After the vote at Chiquita, the company said it held discussions with eight of its top 20 shareholders and the major proxy advisory firms.
Chiquita changed its compensation plan for Ed Lonergan, the company’s new CEO, in an attempt to tie his pay more closely to the company’s performance.
But his pay of $6.2 million, most of which is stock, is still higher than what the company paid former CEO Aguirre in 2011, in his last full year before leaving Chiquita.
“Losing say-on-pay always forces a company to take a hard look at compensation,” said Lonergan after the company’s shareholders meeting last month in Charlotte. “We’re clearly tying our results (to compensation). I’m a firm believer in pay for results.”
High severance packages
But even as boards look to tether pay more closely to performance, they still often award executives high severance packages when they leave a company whose performance is lagging.
Again, Chiquita is a case in point. The company had struggled to grow sales, and it lost $408 million in 2012. But Aguirre’s pay more than doubled, to $12.1 million, because of a $4.7 million cash severance payment and $480,000 worth of consulting fees he received after leaving Chiquita.
Two other North Carolina CEOs saw handsome payouts last year after they left companies with negative returns for shareholders:
• Xerium Technologies CEO Stephen Light retired last year and saw his pay jump 249 percent, to $3.4 million, boosted by a $2.3 million retirement bonus. Shareholders, however, saw a negative 53 percent total return in 2012, as the paper-manufacturing equipment company’s stock fell from more than $9 to as low as $2.79 a share.
Phillip Kennedy, head of investor relations at Xerium, said the company’s board negotiated Light’s exit package in 2011 to help retain him while they searched for a new CEO.
“It gave the board the time to find the right replacement,” Kennedy said. “When looked at through the lens of our stock return, it doesn’t look great. We feel that the change was worth it.” The Raleigh-based company’s stock has since recovered, closing at $9.46 on Friday.
• The chief executive at Charlotte-based Swisher Hygiene also left his company last year. Swisher has seen its share price knocked down to 93 cents a share by financial accounting problems and a pending shareholder lawsuit alleging fraud, which the company denies. Former chief executive Steven Berrard’s compensation more than doubled in 2012, to $1 million, as he received more than $628,000 worth of consulting fees from the company after his departure. Swisher’s return for shareholders in 2012 was also negative 53 percent. A Swisher spokesman declined to comment.
Charles Elson, director of the University of Delaware’s center for corporate governance, said large severance payouts for chief executives are usually in their contracts, and companies aren’t free to alter them if the CEO leaves after a poor performance.
“Unfortunately, that’s contractually determined,” he said. “These contracts were negotiated a few years ago.”
He said chief executives usually receive lavish severance deals because their fellow CEOs at other companies get them in their contracts – a sort of keeping-up-with-the-Joneses of the corporate world.
“No one else in the organization gets something like that,” Elson said. “Why does the CEO? Oh, because the peers are getting it. Having (pay set) by peer groups is something that needs to go away.”
Links to performance
Boards pay their chief executives in salary, bonuses, stock and option awards, and perks. And this year the changes in those various components are telling.
Companies are shifting more of their compensation from short-term components such as salary and bonuses to multiyear grants of stock and options. Those equity grants, often tied to specific performance conditions before vesting, are thought to better tie pay to performance and help retain executives.
The median salary for a CEO fell 6.2 percent, to $715,750, and the median bonus fell 8.6 percent, to $917,495. But the median stock award rose 7 percent, to more than $2 million, and option awards jumped 6.9 percent, to just over $1 million.
Perks for the state’s largest companies rose for the second year in a row – by 3.1 percent, to a median of $98,250. The category includes everything from executive physicals and use of corporate jets to supplemental retirement contributions and tax preparation help.
Across the country, CEOs of 300 of the largest public companies pulled in a median pay package of $10.1 million last year, up 3.6 percent, according to The Wall Street Journal. But the analysis also suggested that CEO pay might be leveling out after decades of rapid growth.
Under pressure for years, boards aren’t as willing to give out the big raises that were more routine for CEOs in the past, said Steven Hall, a New York-based compensation consultant and co-founder of Steven Hall & Partners.
“Compensation committees won’t accept that anymore,” he said. “This is no longer tossing around words. They really mean it.”
Failure to reach targets
Some chief executives in North Carolina saw their pay fall after their companies failed to reach targets boards of directors set for their bonuses.
• John Cato of Charlotte-based Cato Corp. didn’t get a bonus in 2012 after receiving a $1.6 million bonus in 2011. The reason? The board of directors had set a goal for Cato of increasing profits 8.7 percent. Instead, profits at the apparel retailer fell 4.9 percent. As a consequence, Cato’s total pay fell 33 percent, to $2.3 million.
• Robert Bruggeworth, CEO of Greensboro-based RF Micro Devices, receives an annual bonus tied to measures such as sales, gross margin and operating income. He didn’t get a bonus for 2012 because the maker of radio devices and semiconductors fell short of the minimum required threshold in all of those categories last year. That knocked his total pay down 14 percent, to $3.6 million.
The Observer’s analysis found only eight North Carolina CEOs were paid more in 2012 despite losses for shareholders, including the three who got severance benefits. That’s a contrast with last year, when the analysis found one-third of the state’s largest companies saw higher pay despite shareholder losses.
In the past, performance-based incentive awards were usually in the form of cash, Hall said. Now, he said the accepted best practice is to award at least 50 percent in stock, to tie a CEO’s ultimate payout to the company’s performance, and many companies are following that. “We’re now hearing that companies are feeling pressured to go to 60 percent” stock, he said.
These days, companies are spending more time talking with shareholders about how they think CEOs should be compensated, said Carol Bowie, head of research for the shareholder advisory firm Institutional Shareholder Services. Proxy statements typically contain more detailed explanations of CEO pay.
“I think they really are making efforts at this point to be persuasive to shareholders that what they’re paying makes sense,” Bowie said. “In some cases, that may involve more marketing spin than we’ve seen in the past.”