CEO paywatch: A peek inside the proxies

  • Updated: June 26, 2010 - 9:52 PM
The Great Recession has trimmed executive pay, as some chief executives have taken salary cuts and many more have seen bonuses slashed as companies failed to meet goals in a worsening economy. It's also clear that compensation committees, the folks who set CEO pay at publicly held companies, have struggled to strike the right balance of incentives amid rapidly changing business conditions. Outsiders can get a glimpse of those deliberations by reading the company's annual proxy statement. Here's a look:

DISCRETIONARY BONUSES FOR MANAGING THROUGH THE RECESSION

This year a number of compensation committees awarded discretionary bonuses to executives who did not meet performance targets but who nonetheless managed well while responding to the recession.

Xcel's Richard Kelly earned a discretionary bonus of $386,762 for meeting leadership goals, which amount to 25 percent of his non-equity incentive pay. According to the Xcel proxy: "The leadership factor was applied to reward his leadership role in managing through extraordinary weather and sales challenges."

In July 2009 the Mosaic board authorized a discretionary short-term bonus to its executives including $300,000 to CEO Jim Prokopanko. But the executive team did not earn a performance award for the year because they failed to meet the operating earnings threshold.

The Valspar compensation committee awarded discretionary bonuses to its executives including $99,000 to CEO William Mansfield citing "2009 performance relative to its peers and the overall market during a challenging economic period."

In planning for 2009, Stratasys Inc. recommended a salary freeze for all employees, including management. Then sales and operating income failed to meet company targets for awarding performance-based annual bonuses.

When the Stratasys board met in February the compensation committee evaluated each executive's performance and determined the reason the company failed to meet its targets was mainly due "to the worldwide reduction in capital expenditures in 2009, rather than a failure of management." So the committee awarded discretionary bonuses, but at just 28 percent of what executives would have earned had they met the targets.

CEOS TOOK SALARY CUTS

Several CEOs and their executive teams took salary cuts last year, sharing at least some of the pain with employees who saw their salaries frozen, cut or worse.

In April 2009 Intricon temporarily reduced salaries of officers and employees. CEO Mark Gorder's salary was reduced by 20 percent, other executive officers were reduced 15 percent and employees were reduced by 5 to 10 percent.

Hutchinson Technology's compensation committee reduced base salaries of all executive officers by 5 percent in January 2009, after having previously reduced base salaries for executive officers by 5 percent during fiscal 2008.

Winmark CEO John Morgan voluntarily reduced his salary during a five-month period in 2009.

Uroplasty said it froze executive salaries for 2010 in response to the recession.

SUNSHINE AFTER THE STORM?

Salary cuts and wage freezes aren't necessarily permanent. In April 2009, the Medtronic compensation committee cut executive salaries 5 percent, including CEO William Hawkins. A year later, the committee met and restored the cuts effective May 1.

As the recession deepened in December 2008, the Pentair compensation committee froze executive salaries for 2009. In May 2009, CEO Randall Hogan agreed to reduce his base salary 10 percent for the rest of the year. The compensation committee adopted Hogan's 2010 recommendation to restore merit-pay salary increases for upper management executives by July.

Appliance Recycling cut executive salaries by 20 percent in June 2009. On Dec. 31, salaries were reinstated by 5 percent. The remaining 15 percent may be fully reinstated on a date to be determined in 2010.

MOVING THE GOAL POSTS

Target headed into an uncertain economy in 2009, which led the compensation committee to get creative. Instead of bonuses based on annual goals, the committee split the year in two halves: a "spring season" that covered the first two quarters of the year (which were quite slow) and a "fall season" that covered the final two quarters of the year (when consumer spending picked up a bit). Still, the company exceeded its performance goals for both seasons.

JUDGING RISK VS. REWARD

After the federal government's bailout of banks, regulators insisted that financial companies avoid rewarding executives for taking excessive risks. Here's how that directive plays out at Piper Jaffray in 2010:

CEO Andrew Duff's salary has been the same for the past three years. For 2010, the company raised the percentage of salary and reduced the percentage for bonus as part of the total compensation mix; as a result, Duff's base salary will increase from $400,000 to $650,000. Other senior executives will get similar salary increases this year. The theory? By increasing base salaries and reducing the annual incentive percentage, the company is trying to lower the potential for excessive risk-taking.

ONE THAT GOT AWAY

CEOs can still be lured by better offers. Case in point: Bruce Barclay, who joined SurModics Inc., a provider of drug delivery technologies to the health care industry. Barclay joined the company in 2003 as president and was named CEO in 2005. In last five years SurModics sales have soared to $121.5 million, an annual growth rate of 19.6 percent.

In March 2009, citing the economy, the compensation committee cut Barclay's salary 10 percent, to $394,300, and made 5 percent cuts to other top executives.

Four weeks ago, Barclay resigned from SurModics to become CEO of Hansen Medical Inc., a Mountain View, Calif.-based maker of medical robotics with annual sales of $22.2 million last year. Barclay's annual salary at Hansen Medical: $450,000.

And to help Barclay relocate to the San Francisco Bay area, Hansen Medical will provide a housing and relocation allowance of $15,417 per month during his first 12 months on the job.

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