Payday was a real bonanza for the boss last year.
While the earnings for the average worker in the ?Buffalo Niagara region inched up by a little less than 4 percent, payday brought a windfall for the top executives at ?the area's publicly traded companies.
The median pay increase for the region's top executives jumped by 22 percent ?last year – more than double 2010's 10 percent increase – boosting their median total compensation above the $1 million mark for the first time in the 20-year history of the Buffalo News' annual review of CEO pay.
While the average local worker's earnings are only beginning to recover from two years of flat wages during the Great Recession, executive pay ?has rebounded with vigor.
The median pay of the 59 executives included in the News survey jumped to $1.17 million, fueled by a huge spike in stock awards and a healthy increase in bonuses as sales and earnings improved, while the stock market strengthened.
In contrast, the annual earnings of private-sector workers in the Buffalo Niagara region rose ?by 3.9 percent last year, which gave the typical employee a raise of almost $26 a week, according to data from the ?U.S. Bureau of Labor Statistics. While average hourly wages went up by a little more than 3 percent, total earnings ?went up a little faster because a typical worker spent about 10 additional hours on the job last year.
With unemployment still running at an unusually high 8.3 percent and plenty of competition for every open position, workers have little leverage in negotiating wages.
The survey shows there still is a yawning gap between what the typical worker makes and what the boss takes home. The median pay of the local executives last year was almost 28 times higher than the $42,520 median annual wage of workers in the Buffalo Niagara region, according to the U.S. Bureau of Labor Statistics. Federal Reserve Bank of New York President William C. Dudley noted last week that employment costs across the United States have risen just 2.1 percent over the past year and aren't showing any signs of accelerating.
The pay of the top executives at publicly held companies also tends to be far greater than it is for CEOs of companies of all sizes, both big and small. The median pay of all CEOs in the Buffalo Niagara region last year was just under $175,000, according to the federal data.
Jerry Newman, a University at Buffalo professor and a compensation expert, said the increase stems from the growing focus on linking executive pay to the performance of a company's business and its stock.
"There's been a lot of movement toward performance-based shares," Newman said.
"The market's been doing pretty well, and I suspect a lot of CEOs have hit their target," he said. "And if a target's tough to meet, they change the target."
Six local executives – slightly more than one of every 10 included in the survey – earned more than $3 million last year, led by David F. Smith, National Fuel Gas Co.'s chairman and CEO, whose total pay approached $7 million. Sixteen – or more than a quarter of the 59 executives that were part of the survey – earned more than $2 million in total compensation. And for the first time, more than half of the local executives included in the survey – 33 in all – earned more than $1 million.
Nationally, the head of a typical public company made $9.6 million in 2011, according to an analysis by the Associated Press using data from Equilar, an executive pay research firm. That was up more than 6 percent from 2010 and was the biggest increase in at least six years.
Locally, the highest-paid CEO earned far less, highlighting a long-standing trend of the pay for local executives lagging far behind the earnings of top brass at the nation's biggest companies. Part of that gap is because the local companies, in most cases are much smaller than those big U.S. firms.
Indeed, the CEOs at companies with more than $10 billion in market value had an average total CEO pay of $13.6 million, four times the $3.4 million paid to the typical chief executive at companies below that threshold, according to a Bloomberg News analysis of data provided by Institutional Shareholder Services.
As a result, pay levels tend to be lower among the Buffalo Niagara region's CEOs.In an example of moderate CEO pay in Buffalo, at M&T Bank, a top 20 U.S. banking company and the only local firm to crack the $10 billion market value threshold, Chairman Robert G. Wilmers' $2.9 million in pay was just a quarter of the national average among large companies.
> Salary controversy
The CEO at the top of the local list, National Fuel's Smith, has seen his $7 million pay package turn into a lightning rod for community activists locally and become a target of criticism from a national shareholder advisory group.
"Essentially this list is a commentary on the lack of publicly traded companies headquartered in Western New York," said Karen L. Merkel, a National Fuel spokeswoman. "As Buffalo is home to only three Fortune 1000 companies, there is little doubt that National Fuel's compensation is at the top of the list based on our company's growth within the natural ?gas industry."
Most companies use surveys done by compensation consultants to formulate their executive pay packages. The compensation surveys typically compare pay at the targeted company with other businesses in the same industry, although the makeup of that peer group is subjective.
National Fuel's compensation committee said it reviewed its consultant's survey and determined that Smith's salary "was well below the energy industry median" and moved to "bridge that gap" over a period of several years. Smith's base salary, which grew by 9 percent in 2010, was increased by another 8.1 percent last year.
In contrast, a prominent shareholder advisory firm, Institutional Shareholder Services, opposed National Fuel's executive compensation plan, arguing that there was a "pay for performance disconnect" in the company's executive compensation practices. The ISS report said Smith's total pay last year was 2.45 times the median pay of CEOs in a group of comparable companies, primarily utilities, selected by the advisory group.
National Fuel countered by saying the companies ISS selected didn't reflect its growing oil and gas drilling business. Its New York utility business supports only about 8 percent of the pay of its top executives, Merkel said.
Yet the controversy had little impact on the advisory "Say On Pay" shareholder vote that National Fuel and all other publicly traded companies now must hold each year. National Fuel shareholders still approved the company's pay plan by a nearly 3-to-1 margin.
Overall, those votes generally have done little to curb the rise in CEO pay, nor have they posed a major threat to the way companies pay their top executives. The main reason: The "Say on Pay" resolutions nearly always pass, and usually by wide margins. In 2011, more than 98 percent of companies won shareholder support for executive pay packages, and this year's results appear to be headed for similar results.
> Incentive pay, perks
After holding the line on salary increases for several years as the economy struggled, companies last year were more generous in boosting the base pay of their top executives.
Only three of the executives included in this year's survey – including Gibraltar Industries CEO Brian J. Lipke and M&T's Wilmers – went without salary increases last year. During 2010, roughly one of every seven of the executives that were part of the survey didn't get a boost in the base salary.
Lipke is used to going without a salary hike. He hasn't had an increase in his base salary in four years, as the Hamburg-based construction products manufacturer struggled through the collapse of the housing market and the recession.
But an executive's salary is only part of the overall compensation package, and the trend in recent years has been to base more of the total pay on factors that are linked to performance-based targets, such as a company's profits, or how well its stock does.
It's now typical for anywhere from two-thirds to three-quarters of a CEO's overall compensation to be linked to these types of variable pay components, ranging from bonus payments to stock options and outright grants of stock.
Those long-term incentive programs provide executives with cash payments or stock based on how the company has done in meeting certain performance benchmarks over the previous few years and can give top managers a hefty boost in total pay, even in a down year. Those incentive-based payments, likewise, can plummet if a company falls on hard times.
National Fuel's Smith, for instance, reaped nearly $2.6 million in bonus payments, linked to the company's performance over the past three years. Smith also received more than $1.1 million in National Fuel stock and options to buy more shares at a fixed price in the future.
"The executive compensation structure is highly performance based," Merkel said, noting that nearly 80 percent of mith's pay is linked to the performance of National Fuel's business or its stock.
Greatbatch Inc. paid its CEO, Thomas J. Hook, nearly $1.5 million in company stock. First Niagara Financial Group CEO John R. Koelmel got nearly $1.3 million in company stock.
In most cases, executives reach a significant percentage of their performance targets, but in rare cases, they fall short. Columbus McKinnon's top executives, for instance, last year forfeited the performance-based restricted stock they had been granted in 2008 because the return on the Amherst material handling equipment maker's stock did not meet the standard set when those shares were issued.
David Lanzillo, a First Niagara spokesman, noted that the incentive pay for the company's top executives reflected the bank's rapid growth and its record operating earnings, but also was tempered by the "negative impact" its acquisition of HSBC Bank USA's upstate branches had on shareholder returns. "Our pay-for-performance philosophy governs compensation practices at every level of our organization," he said.
CEOs also receive a wide range of perks that average employees can only dream of, from company cars to memberships in country clubs and business clubs, even annual physical examinations and financial planning services. Some companies, including Gibraltar, even make extra payments to their top executives to cover the taxes they owe on those perquisites.
Computer Task Group's top executives can be reimbursed for up to $10,000 in out-of-pocket medical and dental expenses. Sovran Self Storage and Moog Inc. have similar programs.
M&T Bank reimburses Wilmers for the apartment he keeps in Buffalo, along with the meals and expenses associated with it. The banking company also reimburses its top executives for their parking expenses.
"Perks are making a comeback," Newman said. "That's one thing that really infuriates shareholders. They look at an executive making $900,000 a year and ask why he can't pay his own country club dues."
New executives often get additional perks. Scott A. Bailey, Synacor Inc.'s chief operating officer, received a relocation bonus of $150,000 after joining the company in 2010. William J. Stuart, Synacor's chief financial officer, is in line for a $40,000 bonus if he and his spouse moved to the Buffalo Niagara region from Cambridge, Mass., before Sept. 15.
Stuart also got stock options to buy 250,000 shares of Synacor stock as part of his hiring, and his $250,000 starting salary was bumped up to $290,000 after the company completed its initial public stock offering.
At First Niagara Financial Group, Gregory W. Norwood was granted $400,000 in First Niagara stock after signing on to his new $500,000-a-year post as the banking company's chief financial officer. He also received more than $187,000 in relocation expenses.
Ronald N. Frankel, Synacor's longtime president and chief executive officer, pocketed $1.8 million last year by cashing in some of the stock options he had accumulated during his 11 years at the company. And he is sitting on what could turn out to be more than $10 million in additional profits on other options he's accumulated over the years if Synacor's stock stays at its current level.
Some top local executives had their compensation driven up by big increases in the value of their pensions. In a handful of cases, the pension gains topped $1 million.
Moog Inc. took the unusual step of including in its proxy statement two compensation tables for its executives – one that included the pension gains as required by the Securities and Exchange Commission, and a second one that omitted them.
The differences can be striking. For Robert T. Brady, Moog's chairman and former chief executive officer, his reported compensation of $4.8 million last year more than doubled because of the $2.8 million jump in the value of his pension, resulting from the company's sweetened cash bonus program and the impact of today's low interest rates, among other factors.