Splitting up has paid off for two chieftains overseeing Chicago’s largest publicly traded companies.
Motorola’s split into two companies produced the Chicago area’s highest payouts for top chief executive officers in 2011, according to an analysis prepared for the Sun-Times.
CEO compensation expert Don Delves, president of Chicago-based The Delves Group, which compiled the Sun-Times’ 2011 CEO pay lists, said the 6 percent increase, on average, in CEO salaries, and 12.5 percent jump in bonuses don’t look outrageous given that the companies had a good year, with overall revenues up 15 percent and net income ahead 20 percent from 2010.
The increase in stock and stock-option awards looks huge at 51 percent, but that was because Motorola’s former co-CEOs received outsized awards for the company’s successful split into two independent businesses. Overall equity grants jumped 51 percent with Motorola in the mix, but increased 21 percent without it.
“The leaders are rewarded for executing the (split) and then for running the new company,” Delves said.
The extra-duty pay raises have yet to occur at Abbott Laboratories, Kraft Foods Inc. and Sara Lee Corp. because those companies won’t split into separate businesses until later this year.
The CEO list includes the 25 largest publicly traded companies in Illinois.
Among Chicago-area corporate chiefs, Sanjay Jha, CEO of Motorola Mobility, the smartphone and TV set-top-box division of the old Motorola, has seen two out-sized pay rewards over and above his 2011 pay. He stands to get $66 million if the company is sold to Google, as expected, for $12.5 billion, and in 2008, Jha was the only CEO in the nation to receive total pay, at least on paper, greater than $100 million, receiving a total of $104 million.
Jha, who never moved here from San Diego after being named co-CEO of Motorola in August 2008, saw his total compensation in 2011 more than triple from the prior year, to $47.15 million, according to regulatory filings.
A year ago, Motorola reported it would pay Jha $331,000 to cover his commute on company airplanes and a $7,400 monthly housing allowance to cover rent and other expenses for his residence in the Chicago area rather than reimburse him for his never-fulfilled relocation from San Diego to Chicago.
Google is paying a 63 percent premium for Motorola Mobility to obtain 17,000 patents, plus another 7,500 pending, that reflects an arms race among smartphone software providers claiming ownership of vital operating-system properties that let them charge licensing fees. Motorola is battling Apple, for example, over video compression and “push” emails.
A Motorola Mobility spokeswoman says Jha is being rewarded as his hiring agreement stipulated for the company’s successful separation into a standalone company. He also stands to gain from his own expected separation, since Google is said to be choosing his successor as CEO of Mobility.
Jha’s former co-CEO, Greg Brown, now CEO of Motorola Solutions, the walkie-talkie and bar-code-scanning businesses of Motorola, saw his total compensation more than double, to $29.3 million, primarily due to one-time stock awards worth $19.8 million – a $12.5 million reward for the successful separation of the company and a $7.3 million “leadership grant” in stock options and restricted stock given to select executives, a Motorola Solutions spokeswoman said. Brown’s base pay was restored to $1.2 million after he agreed to reduce it to $900,000 in 2009 and 2010, as Motorola cut jobs and squeezed costs. Motorola Solutions’ $8.2 billion in revenues on net profit of $1.15 billion topped the previous year’s $7.6 billion in revenues on net profit of $633 million.
Brown said in an interview that he recognizes the sensitivity of big CEO payouts.
“That’s why we’re focused on providing superior returns to stockholders and stock price appreciation,” he said. The cash-rich company has spent $2.5 billion buying back its shares since it went its own in January 2011.
A distant third place went to Miles White of Abbott Laboratories, despite a decline in his total pay from 2010. White’s $24 million in total compensation in 2011 represented a 6 percent drop in pay from 2010’s $25.6 million, due to a 5 percent decline in the value of his bonus and drops of 12 percent and 10 percent, respectively, in the value of stock awards and stock options he received.
White, too, is overseeing a company rending – in Abbott’s case, into one company focused on pharmaceuticals and the other on diagnostics and medical devices such as heart stents.
An Abbott spokeswoman said much the same as all corporate spokespeople: The CEO provides valuable leadership and ensures the company does its best financially and operationally.
White, who was named to Barron’s 2011 list of the world’s best company leaders, is an investor in Wrapports, owner of the Chicago Sun-Times.
A close No. 4 in total compensation was Boeing CEO James McNerney, whose $25.4 million was up 14 percent from 2010.
The increase stemmed from a doubling of his bonus and incentive pay, to $8.7 million in 2011, and a payout from the company’s long-term incentive plan. A spokesman said Boeing won a record number of orders for its widebody 777 airplane and multi-billion-dollar orders from the U.S. government for an Air Force tanker program and for helicopters and fighter jets on behalf of Saudi Arabia.
Boeing’s net profits last year jumped 21 percent, to $4 billion, and revenue increased 7 percent, to $68.7 billion.
Rounding out the top 10 in total pay were:
â—†Irene Rosenfeld, Kraft.
â—†Samuel Allen, Deere & Co.
â—†Daniel Ustian, Navistar
â—†Jeffery Smisek, United Continental Holdings.
â—†Robert Parkinson, Baxter.
Those getting the biggest pay increases, beside the Motorola CEOs, according to the data compiled by The Delves Group were:
â€ Smisek, up 237 percent.
â—†Marcel Smits, Sara Lee, up 81 percent.
â—†Nelms, Discover, 62 percent.
â—†Douglas Oberhelman, Caterpillar, 60 percent.
â—†Gregory Wasson, Walgreen, 51 percent.
â—†Ustian, 46 percent.
â—†Allen, 41 percent.
â—†Robert Livingston, Dover Corp., 38 percent.
â—†John Rowe, who retired on March 12 from Exelon Corp., up 24 percent.
On average, total compensation for the Illinois CEOs increased 25 percent in 2011 from the year earlier. The increase would be 12 percent excluding widely differing items such as pensions; both Motorolas, which had outsized stock awards from the company’s split, and companies that didn’t have a new CEO in 2011. Pensions increased 21 percent, on average.
In the S&P 500, the average CEO pay jumped 13.9 percent in 2011, to a yearly $12.94 million, making CEO pay 380 times that of the average worker, according to the AFL-CIO. Average workers’ wages increased 2.8 percent, totaling a yearly $34,053, the union said.
Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, said the problem with ever-increasing CEO pay is that corporate boards set the compensation based on a small set of “peer” CEOs, wrongly assuming that a CEO’s talents easily transfer from one company to another.
“Using the peer-group process escalates pay by 15 to 20 percent a year,” Elson said.
He said corporate boards should instead focus on the company’s internal talent and performance, and reward the CEO accordingly, and realize that top talent may want to stay with the company even if his or her pay doesn’t escalate each year.
“The notion of the superstar CEO has been a fixture of business life for at least two decades and it is at the heart of the compensation problem that continues to vex the public,” Elson said. “It’s time we consigned the myth to the dustbin.”