What Recession? CEO Pay Up 3.5% In '07

Half Of Highest-Earning Executives Headed Companies Whose Profits Shrank Dramatically

(AP)  O'Hara, who plans to retire later this year, was also given 62,500 shares of restricted stock and 250,000 stock options, which were not included in the calculation of his total compensation. The company said that was to "reflect the importance of Mr. O'Hara's role in the CEO succession process."

"The cracks in the idea of pay for performance really start to show when performance falters but pay still rises," said Paul Hodgson, senior research associate at The Corporate Library, an independent corporate governance research firm. "It's always a win-win scenario for executives."

Even companies with huge profits and soaring stock prices can be faulted for not following the principle of pay for performance, according to some experts on corporate pay.

As an example, these experts cite the energy industry, where CEOs in the AP survey chalked up a median 32 percent gain in 2007.

It's no secret that profits at oil and gas companies have raced higher in recent years, and stock prices have followed. But that's not necessarily because CEOs are more skillful at operating their businesses. The boon has more to do with the surge in the price of oil, which this year topped $130 a barrel for the first time on the New York Mercantile Exchange.

"The issue of an escalated price of oil shouldn't flow back in to executives' wallets, but to shareholders in the form of higher dividends," said activist investor Gerald R. Armstrong of Denver, who owns shares in XTO Energy Inc.

XTO's CEO Bob Simpson, with annual compensation of more than $50 million, has ranked in the AP's list of the 10 highest-paid chief executives for the past two years.

Pay consultants say that illustrates a weakness in executive pay programs. When outside factors help the bottom line, CEOs tend to benefit personally as well. But the opposite is not generally true, said Bill Coleman, chief compensation officer for Salary.com, which provides corporate pay information.

"How convenient," he said. "I take credit for everything good and I blame external factors for anything bad, but say that shouldn't affect my pay."

There were examples of companies that really did cut back on pay during a bad year.

Department store operator Dillard's Inc., plagued by falling sales, profits and stock value, cut CEO William Dillard's pay package by two-thirds, to $1.1 million, according to the AP calculation.

Of course, compensation is not always designed to reflect how the company does in the year it's handed out. Sometimes boards give out bonuses to the CEO for a strong performance a year earlier, and sometimes they are pegged to future performance goals.

At investment bank Morgan Stanley, CEO John Mack was paid a total of $41.7 million for 2007, a rough year for the bank. That made him No. 8 on the AP list of CEOs.

But Mack's pay was largely tied to his performance in 2006. The investment bank said in February that Mack would not be taking home a bonus for 2007 because of the company's heavy losses in the subprime lending crisis.

At Merrill Lynch, part of Thain's $83.1 million pay package hinges on whether the stock rises. He got options on 1.8 million shares as part of his signing agreement, but two-thirds of them will only vest if the price of Merrill stock clears specific hurdles for 15 straight trading days.

Right now Merrill shares trade at about $35, far from the $80 a share level that has to be reached for the first bundle of Thain's options to be in the money.

Shareholders aren't in the boardroom when pay decisions are made, but at some companies they are gaining clout and holding directors more accountable.

In May, insurer Aflac Inc. became the first major U.S. company to give investors a vote on how senior management is paid, and shareholder proposals requesting an annual nonbinding vote on pay received slightly more support at U.S. companies this year.

This issue has also spilled onto the presidential campaign trail. Democrat Barack Obama and Republican John McCain support giving shareholders some say on executive pay. Obama wants to legislate it, while McCain says companies should make the move themselves.

The votes would be nonbinding, but they would still shine more light on executive pay.


Also contributing to this story: AP Business Writers Vinnee Tong, Ellen Simon, Jayna Desai, Tali Arbel, Erin Conroy, Mike Obel, Candice Choi, J.W. Elphinstone, Kristen A. Lee, Ben Berkowitz and Dorothea Degen.


List Of Highest-Paid CEOs In 2007

The 10 highest-paid CEOs for 2007 at Standard & Poor's 500 companies based on calculations by The Associated Press. The total pay figures are rounded, and are based on the AP's compensation formula, which adds up salary, perks, bonuses, above-market interest on pay set aside for later, and company estimates for the value of stock options and stock awards on the day they were granted last year.

1. John Thain, Merrill Lynch, $83.1 million

2. Leslie Moonves, CBS Corp., $67.6 million

3. Richard Adkerson, Freeport-McMoran Copper & Gold Inc., $65.3 million

4. Bob Simpson, XTO Energy Inc., $56.6 million

5. Lloyd Blankfein, Goldman Sachs Group Inc., $53.9 million

6. Kenneth Chenault, American Express Co., $51.7 million

7. Eugene Isenberg, Nabors Industries Ltd., $44.6 million

8. John Mack, Morgan Stanley, $41.7 million

9. Glenn Murphy, Gap Inc., $39.1 million

10. Ray Irani, Occidental Petroleum Corp., $34.2 million