The 1.2 percent drop in median total compensation last year, as Minnesota companies slogged their way out of the recession, effectively reset the CEO pay clock to 2002.
"I have been through five recessions,'' said Don Lindner, an executive compensation specialist with human resources association WorldatWork, "and I cannot remember two years in a row when executive compensation has been down.''
The 2009 dip comes on top of a much larger 38.5 percent plunge in 2008. But at $926,818, the 2009 median pay package (where half are higher and half lower) is still enough for most folks to get by on.
And while the Great Recession has not been great for CEOs or their employees, there are always exceptions. This year there's a big one: UnitedHealth Group CEO Stephen Hemsley took home $101.96 million last year, including a one-time gain from 10-year-old stock options he exercised when they were set to expire.
Hemsley's gain of $98.6 million accounts for most of the $127 million in total stock gains realized by all 100 CEOs on our list. For that reason, we have factored out Hemsley's pay package in calculating total median compensation to give a better indication of the overall trend.
There are several ways to measure executive compensation, some of which use estimated values of new stock grants.
Since 1997, the Star Tribune has used a "cash value'' recognition method that counts all dollars received in the reporting year, including any gains on the exercise of stock options.
We don't count new option awards in calculating total pay for two reasons: The reported dollar value is only an estimate required for accounting purposes; and the person typically won't receive any cash value from such awards for years.
The 'new normal'
Stock options and restricted stock, called equity compensation, tend to drive the headline-grabbing paydays of chief executives. But in a depressed stock market amid a deep recession, there are fewer opportunities for large equity awards, which explains why executive pay is down in Minnesota and across the nation.
"The numbers reflect the larger economy,'' said V. John Ella, an attorney with the Minneapolis law firm of Jackson Lewis. "We are still in the shadow or echo of the recession and, difficult as it is, executives -- including oil executives -- are finding some humility and struggling to adapt to the new normal.''
Lindner, of the Scottsdale, Ariz.-based WorldatWork, "I think it will have an impact on compensation going forward. With the recession, there is a huge supply of talent out there.''
That said, Lindner adds: "I am pleased that the numbers are down because this is how it is supposed to work. Employees have taken their hits, and compensation committees are telling CEOs: 'We are going to take it out of your skin, too.'''
Robert Kennedy, a professor in the department of ethics and business at the University of St. Thomas Opus School of Business, agrees.
"It seems reasonable to me that there should be this kind of reduction,'' Kennedy said. "It is hard to raise CEO compensation at a time when employees are being laid off or taking salary cuts.''
But Kennedy points to "a certain irony: It is tougher to manage in hard economic circumstances. Someone could be doing very well in difficult times, even though the numbers don't point to it.''
Kennedy is betting against a third straight year of executives' pay declines. Tax breaks dating to the Bush administration are set to expire next year, which could push CEOs with equity awards to cash in this year, before the scheduled increase in capital gains taxes.
Those lower on the corporate food chain will shed no tears over the boss' smaller paychecks. Average salary increases for rank-and-file hourly and salaried workers in the Midwest rose about 2 percent in 2009, the smallest annual raises in 37 years, according to a WorldatWork survey.
Salaries for officer-level employees rose just 1.7 percent, the salary tracking firm reported. And among all the companies responding, 43 percent reported officer-level salary budgets were effectively frozen, Lindner said. And of course, that was for people who still had jobs.
This year's largest salary goes to 3M Co.'s George Buckley, who got $1.72 million in salary and $6.9 million in total pay.
In all, eight CEOs on the list had base salaries of $1 million or more. Last year's list had 10 such $1 million-plus salaries, including Randall Hogan at Pentair. His salary dropped 6.7 percent, and is now below the $1 million threshold.
The median cash compensation (salary plus bonus) for Minnesota executives rose 13.4 percent in 2009 to $695,711. The comparable figure for 200 CEOs surveyed by the Wall Street Journal rose 3.2 percent to $2.64 million.
"Good to see Minnesota executives are faring better than the national average [in terms of cash compensation],'' said Ella, who attributes the increase to Minnesota's base of healthy companies. Also, cash compensation tends to rise when other types of pay, notably equity awards, fall.
Still, not everyone benefited. Fifty- eight of the Minnesota CEOs got raises last year, compared with 82 in 2008. But 19 took salary cuts, up from just five in 2008, while 17 others got the same salary both years.
While 78 CEOs got a bonus in 2009, 27 of those saw their bonuses go down from 2008. Another 11 earned no 2009 bonus after earning one the previous year.
The median bonus: $222,750. The biggest: $7.79 million for James Cracchiolo at Ameriprise.
Meanwhile, restricted stock awards and "other'' pay and perks dropped 28 percent.
Gains on stock options typically boost executives into the highest-paid ranks, and this year is no exception: Six of the top 10 CEOs got there by exercising options. Joining the ranks of the top 10 highest-paid CEOs are Randall Hogan of Pentair Inc., at No. 10, up from No. 15 a year ago; Kendall Powell of General Mills at No. 8, up from No. 21 last year, and John Wiehoff of C.H. Robinson Worldwide Inc. at No. 5, up from No. 12 a year ago.
In 1999 -- the last full year of the 1990s bull market -- gains from stock options accounted for 70 percent of total compensation for Minnesota's highest-paid CEOs. Last year, option gains contributed 15 percent, excluding the $98 million gain received by UNH chief executive Hemsley, or 44 percent if Hemsley gains are included.
Twenty-one of the 100 executives exercised options in 2009, and the median value of shares exercised was $392,123. That's down from 27 exercisers in 2008 and 35 in 2007. Last year only six exercised more than $1 million worth of options.
Forty-five of the 100 executives realized value from the vesting of restricted stock, down from 50 in 2008. Last year's median restricted stock award was $389,148.
Here's another measure: 49 Minnesota executives took home $1 million or more in total 2009 pay. That compares with our record year of 2006 when 66 CEOs took home $1 million or more.
Four female CEOs made our list, down from five a year ago. Sally Smith, CEO at Buffalo Wild Wings, ranked highest at No. 30, with $1.99 million in total compensation.
Lorna Nagler, CEO of Christopher & Banks, comes in at No. 47 with $1.0 million, followed by CEO Laura Hamilton of MTS Systems at No. 69 with $577,000. Cheri Beranek of Clearfield Inc. ranked No. 85 with $391,000 in total compensation.