How Companies Lard their CEOs' Pay Packages

http://www.thefiscaltimes.com/Articles/2014/04/30/How-Pork-Giant-Smithfield-Foods-Larded-Its-CEO-s-Pay-Package

April 30, 2014
BY ELLIOT BLAIR SMITH,
The Fiscal Times

The second in a four-part series on how CEO pay became a national controversy.

Smithfield Foods CEO Larry Pope stands to take home $46.4 million from the sale of the world’s largest pork producer to Chinese interests last September. Once the deal was announced, the fine print revealed the board had authorized more than $18 million in accelerated stock-based payments to the chief executive, including millions of dollars in previously undisclosed incentives.

In January, Wal-Mart Stores CEO Michael Duke retired after five years at the helm, as the world’s largest retailer was about to report lower earnings. Duke relinquished unearned performance shares potentially worth millions, but the board had awarded him $2 million in 2010 for “achieving at least 2.5 percent revenue growth” when unadjusted revenues grew by just 1 percent.

This March, Alcoa disclosed that its board piled new cash bonuses and stock incentives onto CEO Klaus Kleinfeld ...

Three big U.S. companies. Three boards. One pay consultant: Ira Kay.

The Smithfield, Wal-Mart and Alcoa examples demonstrate that how CEOs are paid is as meaningful, and perhaps more so, than how much. That’s where consultants such as Kay, managing director of Pay Governance LLC, come in. Executive-pay specialists and the boards that hire them preside over bulging CEO pay through alternative compensation-accounting methods, amorphous performance targets, opaque disclosures and equity grants that reward longevity rather than results.

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On Dec. 5, 2007, Rep. Henry Waxman (D-CA), then chairman of the House Committee on Oversight and Government Reform, called a hearing to examine the “inherent conflict” posed by consultants who “are being asked to evaluate the worth of the executives who hire them and pay them millions of dollars.” Congressional investigators had found that, for 2006, only 33 of 113 Fortune 250 companies that hired compensation consultants with conflicts of interest disclosed the relationships to investors. On average, the companies paid the consultants almost 11 times more for other services, averaging $2.3 million, than the $220,000 for executive-compensation advice, according to the report.

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Usha Haley, a management professor at West Virginia University, frames the payments to management in geopolitical rather than performance terms, telling the Senate they produced short-term benefits to Smithfield executives and long-term benefits to China by making the United States “an exporter of the commodity of pork to China and an importer of higher value-added processed foods.”

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First part of the series

http://www.thefiscaltimes.com/Articles/2014/04/29/Man-Pushing-CEO-Pay-Stratosphere

The Man Pushing CEO Pay to the Stratosphere
The first in a four-part series on how CEO pay became a national controversy.

April 29, 2014
BY ELLIOT BLAIR SMITH,
The Fiscal Times

Tiny ice crystals blew sideways, stinging the January air, as the bald man with a scowl made his way from his mid-Manhattan apartment to a debate a few blocks away. Ira Kay was on a mission to defend rising executive compensation against the outrage of dissatisfied shareholders, governance activists and anyone else who might cross his path. He faced a headwind of popular resentment.

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In the 3-1/2 years since the economy began recovering from the worst financial crisis since the Great Depression, the wealthiest Americans had watched their incomes grow by nearly one-third while the rest nursed 0.4 percent gains

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Considered by many clients and competitors to be the top CEO-compensation consultant in the business, the 63-year-old Kay — square-shouldered with small, round eyeglasses — is a managing director of New York-based Pay Governance LLC, which represents board compensation committees at one out of every 10 Standard & Poor’s 500 corporations.

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Kay is an unabashed proponent of blockbuster pay for management, citing the stock market as an independent arbiter of performance, true to shareholders, boards and executives alike, he told me during the course of several interviews before the 2014 shareholder proxy season.

“One of the reasons the U.S. economy has outperformed Japan and Europe is because of our executive pay model,” Kay says. “Companies are setting reasonably challenging goals, they’re beating them and their stock prices are going up. I don’t know what else somebody would want.”

["The U.S. economy" should be defined as how everybody is doing, not just the richest 0.1%]

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By selectively quoting the market, Kay and other executive-compensation specialists are little-known architects of pay-bracket bulge for the 1 percent.

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“Pay awarded to chief executives is becoming profoundly detached from not just the pay of the average worker, but also from the companies they run,” Elson argues.

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