Lockheed Martin

Annual Meeting: April 28

CEO Marilyn Hewson’s total disclosed compensation for 2015 was $28,566,044. Every element of pay increased: salary, stock awards, and bonus (up by more than $2 million to a total of $9 million). The only element that decreased was the accounting/actuarial assessment of pension value. In 2015, Hewson’s pension increased by $8.4 million rather than the $15 million it increased last year.

Why is pay so extraordinarily high at Lockheed? The company says it seeks to pay market rate. To do so it relies on “Similarity in size (a high correlative factor in determining pay)” based on revenue.

The Compensation Committee is quite explicit in noting that it does not — as many companies do — rely on market capitalization when identifying peers, “because market capitalization can change quickly as industries and companies go in and out of favor as investments and as companies restructure. “ Lockheed Martin’s market capitalization is $69.1 billion, putting it at less than half the market cap of many companies including Coca-Cola, Merck or Home Depot. However, on the basis of revenue it ranks in the top 75 companies. But I’m sure that has nothing to do with why they compare themselves to companies of similar revenue rather than companies of similar market capitalization when setting pay.

A study sponsored by the IRRC Institute published in November 2014 notes that a significant variation in pay is linked not to performance but to company size. The study found that: “Economic performance explains only 12% of variance in CEO pay. More than 60% is explained by company size, industry, and existing company pay policy. None of those are performance driven.”

To some extent a link between company size and pay makes intuitive sense: certainly someone running a start-up would expect to be paid less, and differently, than the CEO of a large, complex, multinational company. At this level, however, all companies are large, complex, and multinational. It is at that point where one can question whether executives are likely to leave Apple to join Exxon Mobil. This is particularly the case with an executive like Hewson, who has spent the greater part of her career at Lockheed Martin.

Lockheed Martin’s slogan is “we’re engineering a better tomorrow.” One has to wonder if, in picking comparator companies, Lockheed is engineering ever-higher CEO pay.