Thursday, September 18, 2014
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The Philly CEO difference: Cash

It's a larger part of executive compensation locally than stocks. And it bucks a national trend.

Gallery: The Philly CEO difference: Cash
Brian L. Roberts, Comcast Corp.'s chairman, chief executive officer and president, topped the executive-compensation chart, earning $27.5 million in 2006 - more than any other executive of any company with a major presence in the region.

And his compensation reflects a trend in executive pay that is local - different from the national standard, according to Alexander Cwirko-Godycki, a research manager at Equilar Inc., the California-based executive-compensation firm that examined Philadelphia-area companies for The Inquirer.

Nearly 39 percent of Roberts' compensation, or $10.6 million, is in the form of equity, almost evenly split between stocks and options. The rest is in cash, through salary, bonuses and other compensation.

In the Philadelphia area, "most of the compensation is weighted toward cash as opposed to equity," Cwirko-Godycki said. Locally, the trend - 39.8 percent in equity and 60.2 percent in cash - almost exactly mirrors Roberts' compensation.

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  • In large Standard & Poor's 500 companies, Cwirko-Godycki said, "a lot of times you see the reverse situation."

    That, he said, is probably a reflection of the smaller size of the companies in the Philadelphia sample. Larger firms tend to have longer-term goals and pay their executives in ways that motivate them to meet those goals.

    Equilar uses data in company proxies filed with the Securities and Exchange Commission to calculate total compensation based on what the company offers the executive each year.

    That includes salary, bonus and other compensation, as well as options and stock granted, regardless of when the executive might be able to exercise them.

    Roberts received an $11.4 million bonus on top of a relatively small salary of $2.5 million and other compensation of about $2.9 million.

    Like Roberts, most of the chief executives who are among the region's most highly paid also lead the region's largest companies - at least measuring by annual revenue. Comcast had $25 billion in 2006 revenue.

    Ivan G. Seidenberg earned $20.2 million as head of Verizon Communications Inc., an $88.1 billion company. And CVS Caremark Corp.'s chairman, president and CEO, Thomas M. Ryan, brought in $17.8 million. Company revenue is $43.8 billion.

    But then there are the others:

     

    Cephalon Inc. chairman and CEO Frank Baldino Jr.'s compensation totaled $14.3 million. The company's revenue was under $2 billion. Baldino founded the company in 1987.

    Revenue at Toll Bros. Inc. was $6.1 billion in 2006. Chairman Robert I. Toll's cash compensation dropped by a third, but still topped $23.4 million.

    Universal Health Services Inc.'s chairman, president and CEO Alan B. Miller's compensation reached $21.4 million, up more than 100 percent. Universal Health Services reported 2006 revenue of $4.2 billion.

     

    Is there any relationship between company size by revenue and executive compensation?

    "Only in the crudest sense is it possible to do," said John A. Pearce 2d, who holds an endowed chair in strategic management at Villanova University's school of business.

    More important, he said, would be a person's history in the company. Executives who were one of the founding members or who are in a quasi-family-owned business might be paid more.

    Another category of executive whose pay might appear higher than revenue would suggest would be an executive who was hired, he said, "when the company was in great risk, so they are asking the executive to endanger his or her reputation on a company that has non-excellent chances of long-term survival."

    Pearce and other experts in executive compensation say they are seeing several trends that will likely continue as companies file their proxies for 2007.

     

    Executive compensation is continuing to climb. That is because companies benchmark their compensation against similar companies, according to Temple University accounting professor Steven Balsam, author of Executive Compensation: An Introduction to Theory and Practice. Most companies want to pay their CEOs somewhere above the middle of the range. "Over the long run, it tends to run prices up, because no one wants to admit their CEO is below average," he said.

    Pay for performance is likely to continue because institutional investors like to see that they are getting their money's worth. Pay for perfornmance can come in the form of bonuses, options or equity. "The biggest shift is toward performance-based equity," said Irving Becker, who heads the national practice in compensation for the Hay Group, a global-consulting firm based in Philadelphia.

    Compensation practices will become more transparent under new SEC rules requiring more disclosure, Pearce said.

    As a result, certain "optically challenging" perks will disappear, Becker said. That is his phrase for executive extras that just do not look good to shareholders, especially shareholder activists. Among them, he said, will be country-club memberships, for example.

     


    Contact staff writer Jane M. Von Bergen at 215-854-2769 or jvonbergen@phillynews.com.

    What did you think of this story? Share your thoughts in the Top 100 Discussion Forum.

     

    Jane M. Von Bergen INQUIRER STAFF WRITER
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