For the first time, total annual compensation reached at least $10 million for each of the Top 10 best-paid company executives with ties to the Triad.
All but one also received a base salary of at least $1 million in fiscal 2013.
The Winston-Salem Journal takes a look each May at the packages paid in the previous year to corporate and large not-for-profit agencies based in the Triad or with a major presence in the area.
The Top 10 executives, in order of total compensation, were at Wells Fargo & Co., Lowes Cos. Inc., Caterpillar Inc., B/E Aerospace Inc., BB&T Corp., VF Corp., Hanesbrands Inc., Herbalife Ltd., Reynolds American Inc. and Lorillard Inc.
John Stumpf, chairman and chief executive of Wells Fargo & Co., was the highest compensated executive at $19.3 million. His package was down 15.5 percent because he did not receive any deferred compensation in 2013 after getting $3.6 million in 2012.
Those packages have been a hot-button issue for several years, particularly as the gap between executive and rank-and-file pay continues to widen despite whether overall company financial performance was good or bad.
In the case of these 10 corporations, all performed at or near the top level in their respective industries in 2013.
However, the accusations by hedge-fund activist Bill Ackman that Herbalife is operating as a pyramid scheme have led to some questioning of its financial data in recent quarters, particularly involving its international operations. Herbalife has denied Ackman’s allegations and countered with a series of reports defending its business model.
Seven of the 10 executives received an overall increase in total compensation, according to regulatory filings.
In most instances, stock and option awards were the primary factor in whether the executives’ compensation rose or fell, although seven did receive a salary hike. The awards reflect what the company expects the stock or option to be worth over time, based on the company’s share price on the date of the award.
Executives typically are required to wait a specified amount of time – often one to three years – to receive those shares or exercise the options. Federal regulators require corporations to declare the value annually.
The prevailing theory is that executives will be more inclined to be prudent with shareholder value, potentially taking less risk, if their own compensation is weighted primarily toward share-price performance.
For all but Kelly King, chairman and chief executive of BB&T Corp., stock and option awards were the most lucrative part of the compensation package. In fact, in each case, the executives’ base salaries were smaller than both the stock and option awards, and their bonus/cash incentive pay.
For the top 10 executives, the stock and option awards ranged from a high of $13.9 million for Robert Niblock of Lowes to a low of $2.54 million for King. Bonus and cash incentive pay ranged from a high of $4.74 million for Richard Noll of Hanesbrands to a low of $2.24 million for Douglas Oberhelman of Caterpillar.
Not to say that their salaries were low considering all but one was paid at least $1 million – and King, as the exception, earned $996,250.
Daniel Delen, the recently retired chief executive of Reynolds, got the largest salary raise at 9.8 percent to just under $1.1 million. B/E chairman and co-chief executive Amin Khoury got a 9 percent raise to $1.29 million.
Three chief executives – Stumpf ($2.8 million), Michael Johnson of Herbalife ($1.24 million), and Noll – did not get a raise in salary.
Bonuses less of an issue
John Challenger, chief executive of outplacement consultant firm Challenger, Gray & Christmas Inc., said executive bonuses are becoming less of a hot-button word for shareholders and employees as the economy improves.
However, Challenger said attention remains focused on the widening pay gap between management and rank-and-file employees, especially as executives are awarded with bonuses for increased productivity from employees doing more with fewer resources and co-workers.
For some companies, profits have increased primarily from reduced expenses rather than increased revenue. Banks have been a clear example of this trend, as improvements in their loan portfolios have required less money put into a provision to cover loan losses.
“Company boards are realizing they need to keep total compensation of management under control like they have kept other expenses under control, such as capital investment and overall wages,” Challenger said.
The trend to tie executive compensation, particularly incentive pay and bonuses, to company performance remains a strong trend, although Challenger cautions that “share price is not always the best proxy for measuring overall performance.”
Tony Plath, a finance professor at UNC Charlotte, said 2013 represented a year in which company boards showed more “temperance and restraint when it comes to executive compensation, especially considering that many, if not most, working people have received modest, if any, pay increases.”
“While the economy is indeed improving, the area showing the least improvement is the labor market.
“Given this sort of environment, it’s just not a good time for executives to start spiking the compensation ball in the end zone, even if the corporations they lead have exhibited reasonably good performance in a difficult economic time,” Plath said.
Health executive compensation
The executive compensation list includes six Forsyth County not-for-profit or nonprofit groups that pay more than $200,000 in total compensation.
The main reason why is that executive compensation has risen to corporate levels for many large Triad not-for-profit health-care systems in recent years. Altogether, 32 executives – 29 corporate and three health care not-for-profits – earned more than $1 million in annual total compensation.
For example, the top executives at Wake Forest Baptist Medical Center (Dr. John McConnell, $998,061) and Novant Health Inc. (Carl Armato, $934,520) each made nearly $1 million in base salary for 2012 – the latest compensation year reported by either system.
To put McConnell and Armato’s compensation into context with corporate counterparts, they made more in base salary than 10 chief executives whose total compensation was several times higher than theirs.
They also made more in salary than Brad Wilson, chief executive of Blue Cross Blue Shield of N.C., who received $897,427.
Armato ($686,576) and McConnell ($334,267) received bonus/incentive pay at levels similar to several smaller corporations serving the Triad.
Critics say hospital systems use their nonprofit status for property and sales tax advantages and public-relations purposes, while compensation committees justify corporate-level wages and benefits to top executives.
Supporters of corporate-style compensation levels say nonprofit hospitals need to offer attractive pay to get the best executives in a complex industry.
Hospitals said they, like their corporate counterparts, base executive compensation in part on comparisons with peer systems. Wake Forest Baptist said a fair comparison is with other academic medical centers, such as at Duke and UNC Chapel Hill.
Wake Forest Baptist, even after announcing a 350-position job cut in early May, remains Forsyth’s largest employer at about 12,700, and about 14,300 systemwide.
Wake Forest Baptist said last week in releasing its executive compensation totals for 2012 that “the recruitment and retention of executives who can meet the challenging requirements of the new health care, education and research environment while ensuring the continued success of Wake Forest Baptist as the region’s economic driver, takes proven talents possessed by a small group of health-care executives.
“Compensating executives, as we do all of our employees, competitively and appropriately, is crucial to the success of Wake Forest Baptist and to northwest North Carolina.”
Novant has 25,000 employees in its four-state territory, including about 5,000 in the Triad where it operates four medical centers and Medical Park Hospital.
Novant said in November that executive compensation “must be considered reasonable and within an acceptable range compared to similar organizations.”
“A significant part of executive compensation is based upon the performance of the organization and achieving goals that are challenging, balanced and focused on improving the services we provide to patients and communities. The executive team performs in the top quartile nationally.”
David Meyer, a senior partner with Keystone Planning Group of Durham, said he falls into the category of saying higher compensation is warranted for top-level management at large not-for-profit health-care systems.
“I will opine that these hospital leaders are going to earn their pay with all the changes and challenges that are facing health-care providers during the next five years,” Meyer said.
Ken Berger, president and chief executive of Charity Navigator, says he has been criticized by large not-for-profit health-care systems for saying that the systems should not be making millionaires out of their leaders.
“If it walks like a for-profit and talks like a for-profit, particularly in terms of executive pay, it’s a little disingenuous to ask for the tax-exemption status of a not-for-profit,” Berger said. “Subjectivity tends to go out the window when executive compensation comparisons are made.”
Berger said there are “very competent people in the nonprofit world who are not making a million in salary.”
“The president of the United States is not making a million (at $400,000 in salary), and I would argue that his job is more complex than running a health-care system. The executive director of the American Red Cross (Gail McGovern, $498,800 in 2011 base salary) makes less than your two hospital executives.
“That said, I guess we shouldn’t be surprised that these not-for-profit hospital salaries are being accepted and tolerated.”