Lockheed Martin

Proxy released 3/13/2015

CEO Marillyn Hewson’s total disclosed compensation increased to $33,687,442, an increase largely based on the change in pension value of $15.8 million. Hewson also received over $7 million in non-equity incentive compensation. Of this, the company reports that $4.78 million was her annual incentive, and $2.27 million was paid under a long-term incentive plan.

 

Honeywell

Proxy released 3/12/2015

Total disclosed compensation for Honeywell CEO David Cote is up by more than $4 million, for a total of $29,142,121. A major component of the increase: compensation offered under the rubric of retention for a CEO approaching retirement. In 2014, the board approved a special retention agreement of performance stock options with a grant date value of $5 million, as well as renewing a letter agreement he had with the company. Why the extra incentive? Cote agrees to remain employed with the company through December 31, 2017. Cote, who is 62 years old, also agrees that he will provide “a defined transition period prior to his retirement.” This could be seen as a lack of proper attention to succession planning. A board should have always have in plan a thorough succession plan, in case the CEO is hit by the proverbial truck or more likely private jet. Certainly, as an executive approaches retirement age there should be a particular focus on looking ahead. Perhaps Cote’s retirement package is so lucrative – with a pension valued at $55 million and deferred compensation balance of $113,231,240 – that the board feared he would retire early? If so, more money does not seem to be the answer.

Cotes was also awarded a $5.5 million bonus under ICP awards rather than the much more common form of bonus most company’s use, the tax advantage non-equity incentive grant.

Goodyear

Proxy released 3/13/2015

Despite the high increase in pension value change we are seeing broadly this year, total disclosed compensation for Goodyear’s CEO Richard Kramer declined slightly since last year to $17,853,097. One notable change: beginning in 2014, slightly over half of Kramer’s long term incentive target will be paid in cash rather than equity.

Boeing

Proxy released 3/13/2015

Total reported compensation for CEO James McNerney was $28,861,921, an increase over the prior year. A major change, which became effective in 2014, was replacing time-based stock options with performance-based restricted stock units that pay out based on Boeing’s three-year total shareholder return as compared to a group of peer companies. The equity grant value is close to the combine option and restricted stock value of the prior year. Non-equity incentive compensation is $14.4 million, ($4.4 million based on annual, $10.0 based on long-term); and the change in pension value was over $5 million.

Abbott Laboratories

Proxy released 3/13/2015

The total disclosed compensation for Abbott’s CEO Miles White is down from the prior year. The value of stock awards and option awards are both significantly lower, while salary has remained the same and non-executive incentive pay was reduced, and total disclosed pay was reported as of $17,732, 241.

The Abbot proxy, however, is an example of why the summary compensation is not the only table worthy of focus. In the 2014 Options Exercised and Stock Vested column, one can see that t White realized nearly $9 million on the exercise of Abbot stock, and $15 million in the exercise of AbbVie stock. In addition, he realized $7.78 million through shares acquired on the vesting of Abbott RSUs, and $6.4 million of shares acquired on the vesting of AbbVie stock. These figures total over $36 million dollars, more than twice the pay reported in the summary compensation table.

It has become the fashion at some companies to disclose “realized pay” when stock price declines or other performance issues result in lower than expected payments in equity. One rarely sees the reverse: while it is much more common for executives to reap windfalls, these tend not to be highlighted by the company.

Another proxy table shows that White holds several million additional options. These include 438,000 options each for both Abbott and Abbvie that expire in February 2016 and have a strike price of $21.21, less than half of Abbott’s current stock price. Shareholders should continue to monitor these when evaluating pay at Abbott.

Coca-Cola

Proxy released 3/12/2015

Near the very beginning of the proxy statement, in a purported “question and answer” with CEO Muhtar Kent, the company announces Kent’s decision to forgo his annual incentive. Kent says that based on the “difficult but necessary decisions as we implement our strategic actions to accelerate growth” and in view of the work that still needs to be done, he “respectfully requested” forgoing the bonus. (Elsewhere in the proxy the board estimates his bonus would have been $2.5 million.)

Despite this choice, Kent’s Total Disclosed Compensation for Coca-Cola CEO Muhtar Kent was up year-over-year to $25,224,422. The increase was largely on the strength of the changes to pension value: that figure alone was more than $7 million. The other component of pay that increased was Kent’s option grant: 2.38 million shares with an estimated grant date value of $9.3 million.

Prologis

Proxy released 3/11/2015

If early proxies are an indication, CEO salary increases are a theme this year. On July 1, 2014, CEO Moghadam received a $100,000 salary increase. His bonus was also up, but the company provides a clear table that includes key performance measures, target, actually enabling shareholders to get a clearer understanding of compensation. The CEO exchanged 100% of his bonus for shares, as he has done for the last three years. Some shareholders may have concern that the incentive to do so – the value of equity awards is equal to 125% of the exchanged bonus – may be overgenerous.

General Electric (GE)

Proxy released 3/10/2015

Pay is up for Jeffrey Immelt at GE. Immelt’s base salary increased from $3.46 to $3.76 million, and his cash bonus and cash bonus each increased, his salary from $3.46 to $3.75 million, and his cash bonus 8% to $5.4 million. The bonus is based on compensation committee judgement rather than a formula. The value of stock awards is down though, and overall total disclosed pay would have been down slightly over-all – at $18,855,141 — were it not for the $18 million increase reported under “change in pension value and deferred compensation earnings.” The company is quick to point out that this figure is based on actuarial assumptions including new longer life expectancies. It is very true that this isn’t money he takes home this year, but Immelt’s total retirement package is very real. His pension is valued at over $72 million, with deferred compensation at over $10 million. So with total disclosed compensation of $37,250,774 Immelt takes an early lead for the highest paid CEO on our list.

Changes in performance shares: General Electric’s proxy statement illustrates an all too common problem with the pay for performance mantra: too often when performance targets aren’t met, performance metrics are changed. Because of failure to meet metrics prior awards were cancelled. Specifically, “In February 2015, all of the [Performance Share Units]PSUs granted to Mr. Immelt in 2009 (with a $2.3 million grant date fair value) and all of the stock options granted to Mr. Immelt in 2010 (with a $7.4 million grant date fair value) were cancelled under the terms of the grants because GE did not achieve the specified TSR and Industrial CFOA performance conditions.”

Given those failures the board made changes going forward. For example, the prior four grants of PSUs each included a measure to “meet or exceed S&P TSR” as one of the metrics. In awards for 2014 that metric is gone. The compensation committee says there is a relative TSR modifier, but in this grant the only metrics are tare total cash and operating margin. Also changed, the board has added a threshold performance level as well as a target, so there’s more gradation rather than an all or nothing payment (note the nothing payment of this year). Immelt will also receive new kinds of equity pay – in the past his equity was made up entirely of PSUs but now it includes stock options (500,000 shares this year). Finally, the performance share period was decreased from four years to three years. Shareholders who hope for a true long term focus may find this to be another reason to be concerned with the pay package at GE.

International Business Machines (IBM)

Proxy released 3/9/2015

Big bonus at IBM: The board approved annual incentive at 90% of her $4 million target for CEO Virginia Rometty, for a total of $3.6 million. Last year Rometty recommended forgoing her annual bonus.  For 2014, as noted in the proxy statement, “Financial results were lower than target.”  Notably, the company’s revenue declined, net income and free cash flow also declined.

The proxy discloses that the overall funding for the annual incentive plan was to be based 60% on operating net income, 20% on revenue growth, and 20% on free cash flow, but does not state the actual targets and whether they were achieved.  However, it notes that:  “the Compensation Committee approved an upward adjustment to the score in light of strong results in client satisfaction and workforce development in support of the Company’s transformation.”

The repositioning and investment in research by the board and management may well be wise choices resulting in a significant transformation.  If so, CEO Virginia Rometty will be handsomely rewarded with the increased value of her options and performance share units. An annual incentive, however, is designed — in the words of the proxy statement — to ‘motivate strong short-term business performance.’ IBM shareholders may balk at this bonus. These decision may pay off in the long run, in which case that is when the rewards should be paid.

No matter how IBM shareholders fare this year, Rometty will do fine. Her base salary for 2015 has been increased to $1.6 million, and her target annual incentive has been increased from $4 million to $5 million. Presumably this bonus could also be given despite failure to meet financial goals.

Schlumberger Limited

Proxy released 2/19/2015

Pay is down, but issues remain: The pay package for CEO Paal Kibsgaard, is down from last year, with significantly lower stock awards, as well as lower option grant and annual incentive pay for a decline in total disclosed pay of over $4 million. However, the summary compensation table reports a change in pension value of $1,765,398. As noted in the footnotes this represents a change in actuarial value, not a current payment.  The footnotes indicate the Kibsgaard received $134,904 in unfunded credits to the Schlumberger Supplementary Benefit Plan. The current value of 47-year-old Kibsgaard’s non-qualified deferred compensation, in the five separate plans in which he participates, is over $.4.4 million. These tax-advantaged retirement savings allow for vast wealth accumulation for the company employee who is least likely to face retirement insecurity.

We also note that the company’s Performance Share Units allow for accelerated vesting in the case of a merger or consolidation, a practice many shareholders object to because it creates incentives for business transactions that may not benefit shareholders.

Finally, while not a compensation issue, it is interesting to note that while many companies adopt the governance practice of separating the positions of chairman and CEO, Schlumberger will be re-combining them after the impending retirement of the current board chair.