It has been a tough year for the American worker, with unemployment hovering near 10% and cuts in pay or benefits for many of those who still have their jobs.
But one category of worker is still doing pretty well: the chief executive officer. Job stability has improved for corporate leaders since the recession began. And many still enjoy hefty compensation even as they cut the salaries and positions of their staffs.
To be sure, many leaders are sharing the pain. Total compensation for the average CEO at an S&P 500 company declined last year by 7.5%, or $700,000, according to data tracker Equilar. And executives such as General Electric's (GE) Jeffrey R. Immelt have declined their bonuses, while the CEO of bailed-out Citigroup (C), Vikram Pandit, has sworn to take no more than $1 per year until the bank returns to profitability. Charles G. Tharp, executive vice-president for policy at the Center on Executive Compensation, says "companies are making sure they are aware of risk and incentives."
But there are some notable exceptions: Michael Jeffries of Abercrombie & Fitch (ANF) saw his pay climb 39% last year, even though the retailer's stock fell 72% and it has trimmed staff. (Abercrombie declined to comment.)
Directors face a difficult balancing act amid the recession. They must retain top executives and reward those who make the hard choices that will boost the bottom line. Often that means job cuts and labor concessions.
But directors also need to be sensitive to perceptions. Problems can emerge when leaders appear to be reaping high rewards at a time when they're demanding sacrifices from their workers. Wharton School professor Peter Cappelli says such moves can seem "patently unfair" and argues they can undermine morale. Umesh Ramakrishnan, vice-chairman of executive recruiter CTPartners, says many senior executives still view their pay primarily in light of "how they will be perceived as ranking vis-à-vis their peers, and how that will affect their next move." Even though some CEOs seem focused on staying ahead in the pay stakes, leadership guru Warren Bennis warns that "employees are extraordinarily wary and watchful" right now.
Consider ConocoPhillips (COP). In January, CEO James J. Mulva cut 4% of the Houston oil giant's workforce. Two months later the company announced that Mulva had earned $29 million in 2008, on top of nearly $100 million he had made in the two prior years. In Bartlesville, Okla., where a chunk of the layoffs hit, many are still looking for work. The fact that Mulva took a $10 million stock grant in 2008 instead of the $38 million he got the year before hasn't been much comfort to former employees there, some of whom lost their homes. Conoco did not respond to repeated requests for comment.
Many of the recent headlines about CEO compensation have focused on companies like American International Group (AIG) and Merrill Lynch (BAC), where bailout money hasn't stopped big bonuses. But even at far healthier companies there is resentment over executive pay. Hewlett-Packard (HPQ) CEO Mark V. Hurd's total compensation last year was $42.5 million, thanks in part to a three-year package that paid out last year. With HP stock up 22% this year, vs. about 14% for the S&P 500-stock index, many would say he's on the right track.
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