The compensation levels of plastics industry executives in 2008 underscore how difficult it can be to assess whether compensation has been sufficiently tied to performance.
In a year when many stock prices tumbled by half and extreme double-digit negative numbers were the norm for shareholder return, average total compensation of the top 150 executives in the plastics industry only declined by a shade more than 6 percent.
Nearly every other significant measure of compensation for the top 150 executives in Plastics News' ranking showed year-to-year increases in both average and median levels:
* Median compensation in 2008 was about $850,500 compared with $817,800 in 2007.
* The average one-year NEIP or non-equity payout typically based on performance increased from $185,048 in 2007 to $231,377 in 2008, and the median payout was about $91,031 compared with $54,685 even though more than one-third of the companies in PN's ranking did not pay one-year bonuses for performance last year.
* The number of stock awards rose from 93 to 101, with14 executives receiving awards valued at $1 million or more as many as in 2007. The average award value was up more than 10 percent, to about $347,100; the median value increased 6 percent, to $97,628.
* Both the number and average value of stock options ($154,791) granted in 2008 were nearly identical to 2007.
Part of the reason for the lack of clarity, when looking at 2008 numbers, is that the recession didn't start until the last quarter of the year, said Paul Hodgson, senior research associate with the Corporate Library in Portland, Maine.
And some executives exercised stock options in January and March that skewed the numbers because that gain or that value occurred prior to the economic decline.
Joe Mallin, managing director of the Atlanta office of New York-based compensation consultant Pearl Meyer & Partners, agreed.
Bonuses for one-year performance didn't necessarily disappear because the first nine months of 2008 were good. So how much you were impacted depended on when you were impacted, Mallin said.
In addition, the reported values of stock options were based on the grant date and many, if not most, dropped underwater and remain underwater today, despite the stock market rally in the past few months.
For the executive, that is a net-worth loss, both for options not exercised and stock they already own, Mallin said. You have to look at the timing of everything and measure the loss or gain based on what they paid for the stock.
Most stocks today are woefully underwater, agreed Andy Goldstein, an executive compensation practice leader in the Chicago office of Washington-based Watson Wyatt Worldwide. The stock market would have to rise to pre-crash levels for their values to pay off.
Still, overall executive compensation among publicly traded plastics firms did not fall as much as it did for CEOs across the rest of the business world.
Equilar Inc. of Redwood City, Calif., analyzed more than 200 CEOs on the Standard & Poor's 500 Index. Results showed median CEO pay fell 6.8 percent in 2008 to $8,446,935, compared to the 4 percent median increase in compensation for the top 150 executives in the Plastics News ranking.
For S&P 500 companies, 2008 marked the first decline in median CEO pay since 2002. Equilar also found that the median cash bonus for S&P CEOs declined 20.6 percent to $1,473,520.
Even though compensation levels of the top 150 executives in the Plastics News ranking took less of a hit, overall total compensation levels of plastics industry executives and their one-year performance payouts remain way below the averages for S&P 500 firms.
For example, even the highest-paid executive in the PN ranking William Hickey, chairman and CEO of Sealed Air Corp. earned $7.87 million, which is less than the $8.44 million median compensation level of the S&P 200 CEOs.
Similarly, only Tupperware Brands Chairman and CEO Rick Goings, with a 2008 performance bonus of $4.04 million, had a one-year payout for performance that exceeded the median bonus at the S&P 500 companies.
In addition, the top three executives at Magna International Inc. exceeded that median bonus not for meeting performance targets but because the Aurora, Ontario-based auto supplier gave its top five executives pay adjustments for both 2008 and 2009.
With a limited explanation in its annual report, Magna gave adjustments of $2.8 million for 2008 and $4.2 million for 2009 to co-CEOs Donald Walker and Siegfried Wolf. It also gave Chief Financial Officer Vincent Galifi $1.35 million for 2008 and $1.75 million for 2009; and Tom Skudutis, chief operating officer of exteriors and interiors, $1.4 million and $1.35 million respectively.
In addition, it gave Executive Vice Chairman Belinda Stronach compensation adjustments of $1.85 million for 2008 and $2.55 million for 2009, with the latter payment for business services under a management contract that began in January.
In its annual report, Magna said: In recognition of the impact of the extraordinary economic and industry circumstances which became apparent in the second half of 2008 and continue into 2009 [Magna] made some modifications to our executive compensation on an exceptional basis for 2008 and 2009. It did so to ensure consistency with the objectives underlying its compensation program, the report said.
Consequently, those five executives are not eligible to participate in the company's 2009 pre-tax profit-sharing plan, the report said.
Magna did not respond to requests for additional explanation.
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