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Chicago Corporations Show How Exec Pay Defies the Downturn

March 23, 2009
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Despite plunging stock values and shrinking profits, most CEOs of Chicago's biggest companies got substantial raises and many pocketed seven-figure bonuses in 2008, plus hefty stock incentives to cash in when business turns around.

Local CEOs typically saw their base salaries increase by 3.3 to 11.1 percent, according to compensation data from annual proxy statements now coming into the Securities and Exchange Commission from the Chicago area's 25 largest publicly traded companies. Promotions meant raises of 20 to 40 percent for top execs at Motorola Inc., Sears Holdings Corp. and Fortune Brands Inc.

Cash bonuses and other incentive payments—ranging from $1.4 million for departed Walgreen Co. CEO Jeffrey Rein to $6.9 million for Deere & Co.'s Robert Lane—were bestowed at about half of the 14 companies filing so far.

Rank-and-file workers at many companies face stagnant wages, pay cuts or layoffs. But Sara Lee Corp. CEO Brenda Barnes got a 15 percent salary hike to $1.15 million for the 2009 fiscal year—"her first raise since she became CEO four years ago," a company representative said.

The raise comes on top of nearly $2 million in cash incentive payments Barnes collected for the year ended June 28, a period that saw Sara Lee swing from profitability to a loss of more than a half-billion dollars and its stock drop 27 percent. Despite the company's poor performance, hers was nearly perfect, meeting 99.68 percent of the company's financial criteria to earn the bonus.

Only one Chicago-area CEO among those reporting so far took a salary cut, W. W. Grainger Inc. chairman Richard Keyser. But he stepped down as CEO at midyear.

Most companies set 2008 salaries early in the year, before the economy and the stock markets went into free-fall. Motorola, Boeing Co. and Sears already are planning to freeze or cut their CEOs' base pay this year.

"The expectation is that his salary for 2009 will be frozen or constant even though he would otherwise be eligible for an increase," said a representative for Boeing CEO W. James McNerney Jr. Last year, Boeing's stock was off 50 percent as delays of its new 787 passenger plane and a machinists strike crippled financial results.

"You will start to see dramatic changes going forward," said Derrick Neuhauser, senior manager in the executive compensation practice at BDO Seidman.

Total compensation for CEOs was a mixed bag, skewed heavily by the value placed on awards of stock options, stock appreciation rights and other noncash incentives. Some, led by Archer Daniels Midland Co.'s Patricia Woertz, saw double-digit increases.

Woertz tripled her stock awards last year to more than $10 million, on top of a 7.7 percent boost in her $1.2 million salary and a $3 million cash bonus, for total compensation that more than doubled to $17.5 million in the fiscal year ended June 30. Archer Daniels Midland's stock generated a 3.3 percent return that year, and its net income dropped 16.7 percent.

"While earnings were down due to one-time gains the year prior, ADM's fiscal 2008 segment operating profit hit a new record of $3.4 billion, up $280 million from fiscal 2007," a company representative said.

With the markets' huge dive since last fall, most equity incentives are deep underwater, worth nothing unless the underlying stocks recover.

"The market has corrected some of these big packages," said Patrick McGurn, special counsel for RiskMetrics Group Inc., a New York proxy-monitoring firm.

In the midst of a severe slump, corporate boards are rethinking executive pay. At ADM, for example, bonuses were tied closely to the stock price until last year, when the formula was shifted to return on net assets, as well as safety and personnel goals.

This year, financial, safety and personnel objectives are weighted less heavily to make room for a new factor accounting for 30 percent of the performance criteria: the compensation committee's "informed judgment regarding the overall performance of the company," according to the proxy. That makes compensation "more closely tied to company performance," a representative said.

"A lot of companies are tweaking hurdles they've set for performance," RiskMetrics' McGurn said. "They're lowering the bar."


Filed by Paul Merrion of Crain’s Chicago Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com

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