3M is one popular peer for CEO pay

  • Article by: PATRICK KENNEDY , Star Tribune
  • Updated: July 30, 2012 - 9:29 AM

The Maplewood giant was a "peer group" cited by compensation consultants at 62 U.S. firms -- more than any other company.

George Buckley

Photo: Steve Niedorf, .

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What do Caterpillar, Harley-Davidson, Medtronic and UnitedHealth Group have in common?

When it comes to paying their CEOs, those companies and 58 others look to 3M Co. to see what the big Maplewood-based manufacturer pays its chief executive.

Indeed, 3M Co. was the most popular "peer group'' company in corporate America in 2011. It was included in the compensation analysis of 62 U.S. firms -- more than any other company, according to Equilar, an executive compensation data firm.

Although companies use a variety of factors in selecting peers, high CEO pay plays a factor.

"Why is the company so popular?" asks Carol Bowie, head researcher for the Americas group at Institutional Shareholder Services (ISS), a proxy advisory firm. "There could be a variety of reasons, but it is certainly notable that [former CEO George Buckley's] pay was high relative to other peers."

Buckley retired as 3M CEO and chairman earlier this year after reaching the mandatory retirement age of 65. A longtime 3Mer, Inge Thulin, became CEO and chairman this spring.

Buckley received $12 million in total compensation for 2011. He received $23.2 million in 2010 and $6.9 million in 2009. Buckley, who took the helm of the global manufacturer in 2005, is credited with navigating 3M through the Great Recession with aggressive cost-cutting and with growing sales, in part, through a string of successful acquisitions.

When compensation committees design an executive pay plan, they use a group of comparable companies in order to establish what their executives should make and to set performance criteria and incentive targets. Compensation consultants generally try to select a peer group of companies that are similar in revenue size or industry. But a wide variety of other factors are also used.

3M has some notable characteristics. It is among the 30 blue-chip stocks that make up the Dow Jones industrial average (and it's the only Minnesota company in the Dow). 3M has a global reach, generating about two-thirds of its $29.6 billion in 2011 sales outside of the United States.

Equilar conducted a study of the peer group companies of the S&P 1500 companies, and found that on average firms use 17 companies in their peer group. The most popular company to be chosen as a peer among those firms in 2011 was 3M Co., with 62 mentions, followed by 58 mentions for medical giant Johnson & Johnson and 56 mentions by Eaton Corp.

3M did not respond to a request for comments last week. But according to 3M's proxy statement, the company's own peer group is based on companies that are "reasonably similar to 3M in terms of market capitalization and revenue." 3M includes Minnesota-based Medtronic and Ecolab in its peer group of 17 companies.

In its own 2011 peer group study, ISS and found that popular peers can be chosen for a variety of reasons but they tend to have higher CEO pay.

"Across virtually all sizes of companies, the higher the average CEO pay, the greater the popularity, and vice versa," ISS concluded in its report.

ISS created its own peer group to measure pay-for-performance on companies they study. The 14-member peer group ISS created on 3M matches closely with the 17-member group that 3M actually selected.

Using either group, Buckley's 2011 pay was high relative to its peer group. According to ISS, Buckley's 2011 compensation was at the 85th percentile of its peer group and his pay was 1.5 times the median of ISS's peer group for 3M.

Here are just a few of the companies that use 3M as a peer, according to Equilar: Caterpillar Inc., Chevron Corp., Deere & Co., DuPont, Emerson Electric Co., Harley-Davidson Inc., Honeywell, Illinois Tool Works, Johnson & Johnson, JPMorgan Chase & Co., McDonald's Corp., Proctor & Gamble, Wal-Mart Stores Inc. and Tyco International Ltd.

3M is also in the peer groups of Fridley-based Medtronic and Minnetonka-based UnitedHealth Group Inc.

Other Minnesota companies are popular peers, too, according to Equilar. The research firm found that in 2011, General Mills was included as a peer by 51 companies. Graco had 23 references, Donaldson Co. Inc. had 20 and H.B. Fuller had 17.

Patrick Kennedy • 612-673-7926

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