Top execs: How much and why?

  • Article by: PATRICK KENNEDY and JOHN J. OSLUND , Star Tribune staff writers
  • Updated: June 22, 2011 - 10:35 AM

Companies are now required to justify the pay packages they give CEOs. It makes for interesting reading.

For the last decade, as waves of Wall Street scandals were followed by ever more oversight, public companies have been forced to disclose not just how much they pay top executives but also explain why they pay them what they do.

The bosses' pay and the reasons why officially appear in the "Compensation Discussion and Analysis" section of the annual proxy statement. As a result, proxy statements, which once contained little besides bone-dry legalese, have since 2007 contained some downright interesting observations.

Consider this description justifying a raise for Best Buy CEO Brian Dunn despite a tough year. Dunn, who took the top job two years ago, got a 10 percent raise in base salary "in recognition of his maturity in the chief executive role."

The Best Buy compensation committee goes on to report that Dunn and other executives earned smaller annual bonuses because the big retailer's financial performance came in below target as the company struggled with slowing store sales. Dunn's bonus was cut 75 percent to $747,000.

Don Lindner, executive compensation practice leader at WorldatWork, a nonprofit that tracks pay and benefits, applauds the tighter scrutiny.

"They have to defend or justify the packages they pay," Lindner said. "That was, to me, the single biggest thing. If the company isn't doing well, their executives aren't doing well. It's good for shareholders and it's good for the executives -- and they are still getting paid very well."

Towers Watson, a compensation consulting firm, reviewed 170 proxy statements from larger public companies in both 2011 and 2010, and found a growing effort to communicate more clearly with shareholders on pay issues. Specifically, the survey found about two of every three companies included an executive summary of the pay and practices section in 2011, up from just one in three the year before. Doug Friske, global head of executive compensation consulting at Towers Watson, said that with investors and regulators seeking more clarity "it's no surprise that many companies are taking steps to enhance them.''

That could make proxy statements even more enlightening. Meanwhile, here's a sampling from Minnesota's current crop.

Target CEO Gregg Steinhafel, with compensation of $25.2 million, was the second-highest-paid executive on our list this year. He benefited from the exercise of previously issued stock options and a unique restricted stock award.

Steinhafel's base salary also increased 11.1 percent from 2009, and he also received a "discretionary personal performance payment" of $1.2 million "to recognize his personal performance as chief executive officer in leading the company in delivering record [earnings per share] in 2010 in a challenging environment," the company said.

Target's revenue for the year was up 3.7 percent to $65.8 billion, and net earnings for the year increased 17.3 percent to $2.9 billion.

Ecolab CEO Douglas Baker Jr. took home 60.8 percent more than last year, mainly from the $5.3 million he earned from previously issued stock options, $3.1 million more than he exercised in 2009. Baker's annual salary stayed the same and he earned a $2 million bonus.

Ecolab's short-term bonus is based on earnings per share. Ecolab had an adjusted earnings per share for the year of $2.22, which earned executives 155 percent of the targeted amount.

Baker serves as the company's chairman as well as CEO. In justifying Baker's dual roles the "board considered numerous factors, including the benefits to the decision-making process with a leader who is both chairman and chief executive officer, the significant operating experience and qualifications of Mr. Baker, the importance of deep Ecolab knowledge, which Mr. Baker's years at Ecolab have provided him, in exercising business judgment in leading the Board."

At U.S. Bancorp the compensation committee agreed to give CEO Richard Davis and other members of the managing committee one-time grants of performance-based restricted stock as a retention incentive.

"The committee ... noted the significantly lower value of the outstanding long-term equity awards made in prior years due to the company's suppressed stock price. Based on these factors, the committee determined that the potential for other financial services companies to recruit certain key U.S. Bancorp executives was a significant risk."

Ameriprise CEO James Cracchiolo's total compensation increased 84.2 percent to $18.8 million over the $10.2 million in 2009. The biggest boost for Cracchiolo was from his $9.4 million bonus -- the largest bonus on our list.

He also gained $5.4 million from exercised stock options, which was possible, in part, because of the stock's rebound over the last two years. In its proxy statement, Ameriprise explained that it does not consider the exercise of past stock option awards when considering new ones.

"The committee does not consider gains from long-term and equity incentive awards made in prior years, such as stock option exercises and restricted stock vesting, in determining new incentive awards. The committee believes that reducing or limiting current stock option grants, restricted stock awards or other forms of compensation because of prior gains realized by an executive officer would unfairly penalize the officer for high past performance and reduce the motivation for continued high achievement."

Buffalo Wild Wings. At $1.97 million, Sally Smith is the highest-compensated woman CEO in Minnesota. The casual dining chain exceeded its net income target for the year but fell short of its revenue target, quarterly same-store sales targets and was short of the new restaurant openings it had planned for the year.

As a result, bonuses came in at 65 percent of the target for the year. Translation? Smith's bonus dropped 45 percent to $328,000 last year.

Buffalo Wild Wings explains its compensation philosophy: "Both the annual cash incentive program and the equity incentive program are directly linked to performance. Most of the cash incentive program is linked to the achievement of annual company performance targets. A smaller portion for each executive is based on achievement of individual objectives."

At Polaris Industries Inc., executives and employees got bonuses. CEO Scott Wine got a bonus of $1.1 million, which was 175 percent of his base salary. Polaris was able to distribute profit sharing to employees and above-target bonuses to management because the company's net income increased 45.7 percent, to $147.1 million, and annual sales increased 27 percent, to $2 billion.

On average, Polaris employees will receive a bonus of 19 percent of their annual base salary and they'll participate in the distribution of $8.1 million worth of Polaris stock distributed to their retirement plan. The profit sharing and annual bonuses also come as the company is cutting costs. Polaris is closing a plant in Wisconsin that employs about 515 people and is opening a new plant this year in Monterrey, Mexico.

The Polaris compensation committee rewarded the CEO with an 11.8 percent salary increase to $655,000, noting "that his base salary had been set well below the market median when he was hired as CEO in 2008 because he had not previously served in that capacity for a public company.... After considering Mr. Wine's strong individual performance during 2009, and reflecting the compensation committee's intention to progressively move his base salary toward the market median as performance warrants, the compensation committee approved the increase in Mr. Wine's base salary effective April 1, 2010."

pkennedy@startribune.com • 612-673-7926

oslund@startribune.com • 612-673-7206

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