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Forum Post: CEO Pay Exceeding $30 Million per year / employee pay cuts

Posted 3 years ago on Oct. 4, 2011, 7:07 p.m. EST by billierrrr (1)
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5 huge CEO paydays

When the market was near its low last year, companies handed out fresh stock options to top executives. With the rebound, some of them have scored tens of millions of dollars. [Related content: Ford, American Express, stock market, earnings, Michael Brush] By Michael Brush MSN Money During a recession in which many Americans have had to live without pay raises -- or even jobs -- we've at least been able to take some comfort in knowing that high-level execs shared our pain. CEO pay supposedly declined about 11% in 2009, to an average of $7.2 million at Standard & Poor's 500 Index ($INX) companies, according to The Associated Press.

Discover the highest-paid CEOs But those numbers hide a little secret about pay in a lot of corner offices: Despite the dismal economy, many CEOs had one of their best years ever. Some of the biggest winners scored huge amounts, thanks to well-timed stock-option grants that let them buy stock near the prices of the market's March 2009 lows -- and then watch the value of those stocks soar in one of the biggest bull runs in history. Are CEOs paid too much?

Go to CNBC

The top five of these options kings are the leaders of Ford Motor (F, news, msgs), Starwood Hotels & Resorts Worldwide (HOT, news, msgs), American Express (AXP, news, msgs), Nabors Industries (NBR, news, msgs) and Tenet Healthcare (THC, news, msgs), according to data compiled for me by Equilar, an executive compensation research company based in Redwood Shores, Calif. Find a broker and trade online now They're sitting on windfalls of $25 million to $48.8 million for a year in which most of them cut jobs, downsized businesses, bragged about their own austerity -- or all three. To be fair, their stocks did rise faster than the market in the rally, but only after setting multiyear lows on their watch. That prompts a question: If a company's stock falls on a CEO's watch, does he deserve a windfall when it bounces back? The magic of options I'll call this group the "CEO-pay Houdinis." They pulled off the neat trick of managing to make huge amounts while most everyone else was taking pay cuts or, at best, scratching out just a little more than before. Four other execs at these same companies deserve honorable mentions because they scored anywhere from $14.5 million to $30.8 million on 2009 stock-option grants (see the table below). The key to this cool trick? Options, which allow a recipient to buy shares at a so-called exercise price, usually the price at the time an option is granted. If the stock rises, the taker can exercise his option at this "strike price" and pocket the difference. The lower the exercise price, the better the deal for the recipient. The problem with this is that options cost investors lots of money. Options create shares; more shares in the market means the shares that investors already own become worth less. (For more on this, read "How stock options rob shareholders.") It's worth noting that all five CEO-pay Houdinis sit on, or chair, the very boards that design their pay packages. I'll assume that makes relations fairly cozy. When the markets were near the lows of 2009, their boards issued large stock-option grants at furious paces, often replacing older options that had been basically worthless because of much-higher exercise prices. Then, as the market rebounded -- it jumped about 50% from March 2009 through the end of May 2010 -- these CEOs enjoyed a bonanza. Indeed, because of these supersized slugs of options, the reported pay decline in 2009 "is largely an illusion," says Patrick McGurn of proxy adviser RiskMetrics Group. 2009 options bonanza winners Executive Title Options grant date Number of options Exercise price* Stock price on 5/28/2010 Windfall as of 5/28/2010 Alan Mulally, Ford Motor (F, news, msgs) President and CEO 3/11/2009 5,000,000 $1.96 $11.73 $48,850,000 William Clay Ford Jr., Ford Motor Chairman 3/27/2009 3,470,000 $2.84 $11.73 $30,848,300 Frits Van Paasschen, Starwood Hotels & Resorts (HOT, news, msgs) President and CEO 2/27/2009 1,097,936 $11.39 $46.25 $38,274,049 Simon Turner, Starwood President of global development 2/27/2009 548,968 $11.39 $46.25 $19,137,024 Kenneth Siegel, Starwood Chief administrative officer and general counsel 2/27/2009 417,216 $11.39 $46.25 $14,544,150 Kenneth Chenault, American Express (AXP, news, msgs) Chairman and CEO 1/29/2009 1,196,888 $16.71 $39.87 $27,719,926 Eugene Isenberg, Nabors Industries (NBR, news, msgs) Chairman and CEO 2/25/2009 3,000,000 $9.87 $19.03 $27,480,000 Anthony Petrello, Nabors Deputy chairman, president and chief operating officer 2/25/2009 1,698,427 $9.87 $19.03 $15,557,591 Trevor Fetter, Tenet Healthcare (THC, news, msgs) President and CEO 2/26/2009 5,500,000 $1.14 $5.72 $25,190,000

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