Compensation Restoration

With the Dow cresting 10,000, the trend to slice executive salaries seems to be waning.

A number of firms that cut executive salaries in 2008 or 2009 are in the process of reinstating them, according to a recent report by Equilar, an executive-compensation research firm.

Equilar followed up with the 40 large companies it had flagged last year as reporting at least one executive salary reduction in the second half of 2008. By the second half of 2009, 10 companies had restored the salaries; one of them, JetBlue Airways, gave CEO David Barger an additional raise. Another 4 companies had partially reinstated executive salaries.

Such cuts “were never a huge trend,” with most companies favoring salary freezes instead, says Diane Lerner, senior consultant with Towers Watson’s executive-compensation practice. “I certainly wouldn’t expect more salary-reduction decisions in 2010,” she adds, given the relative health of the stock market compared with last January.

Still, the largest number of companies in Equilar’s sample, 14, were maintaining their salary cuts, while 4 companies — AmeriCredit Corp., Monaco Coach Corp., Spansion Inc., and Sunrise Telecom — reported more reductions. At 8 companies, the relevant executive left before any changes occurred.

Although Equilar primarily tracked changes in CEO salary, many pay cuts involved CFO compensation as well. At Western Digital Corp., CFO Timothy Leyden saw his annual salary reduced 25% between January 12 and October 19, when it went back up to $550,000. Terry Frandsen, former CFO of Escalade, left the company within a month of it deciding to reduce his salary by 15%, along with reducing the CEO’s and chairman’s pay.

In general, executive pay cuts have been “modest,” in the 5% to 10% range, says Steven van Putten, managing director at Pearl Meyer and Partners. “You’re focused on cost control and you’re focused on perception,” he says. “You want to show executives are sharing in the pain.”

A number of companies that announced executive salary reductions in 2009 after the Equilar count have already restored those salaries as well; they include Seabright Insurance Holdings, Volcom, and ArvinMeritor. At ArvinMeritor, in fact, CFO Jeffrey Craig was one of two executives who received an increase on top of the reinstatement in November, from $398,833 last year (including 401(k) contributions) to $478,000 in 2010.

“As economic activity picks up generally, there’s concern about retention, irrespective of what’s going on in a particular company,” notes van Putten.

For the most part, such reinstatements are considered positive economic signs, but there are exceptions. Superior Energy, a specialized oil-field services and equipment provider, reported in December that its CEO and compensation committee decided to discontinue the 10% to 15% salary reductions that top executives, including CFO Robert Taylor, had volunteered for last March. Thanks to big write-downs last year and “market conditions that continue to be challenging,” neither cash bonuses nor discretionary bonuses are anywhere in sight, according to Superior’s December 16
8-K.

 

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