Area CEOs pull down tidy sums in 2007

Matthew Daneman • Staff writer
• June 8, 2008

Anne M. Mulcahy runs a $17 billion company. She makes decisions that affect more than 7,600 workers in the Rochester area. And she gets paid a handsome sum to do all that.

The chief executive officer of Xerox Corp. made $14.6 million in 2007, according to a Democrat and Chronicle analysis of executive compensation at publicly traded companies with operations in the area.

Compensation
includes not only cash in the form of salary and bonuses but also the
value of perks and the estimated value of stock options.

Mulcahy
was the most highly compensated CEO among those whose companies either
have their headquarters in the Rochester area or have large work forces
here.

But some other CEOs, of companies based elsewhere in the
country and with relatively small Rochester-area staffs, did even
better. For example, Exxon Mobil Corp. CEO Rex W. Tillerson had total
compensation of $27.2 million in 2007, according to the analysis.

At
Eastman Kodak Co., the area's largest publicly traded employer with
9,200 local workers, CEO Antonio M. Perez received $11.7 million in
2007.

In all, 51 of 72 executives in the Democrat and Chronicle
analysis had compensation packages in excess of $1 million in 2007. The
compensation data are available only for companies whose stock is sold
to the public. The data come from documents filed annually with the
U.S. Securities and Exchange Commission.

Typically, stock options
or performance-based incentives make up much of a package. Sometimes,
those awards wind up not having any value if the company's performance
lags.

And for every Xerox, Kodak or Corning Inc., where the top
executives all commanded at least $10 million in 2007, there is a
Document Security Systems Inc. or First Niagara Financial Group or Performance Technologies Inc., at which the CEOs made less than $1 million.

Executive
pay is a hot-button issue across the country because, studies have
shown, the gap between what bosses make and what rank-and-file workers
make is much larger than it used to be.

From the end of World War
II through the 1970s, CEO pay grew gradually, according to a 2005 study
by Harvard University and the Federal Reserve Board.

But between
1980 and 2000, the ratio of CEO-to-worker pay increased more than
tenfold, from 42-to-1 to 525-to-1, according to a 2007 study by the
liberal Institute for Policy Studies in Washington, D.C., and United
for a Fair Economy, a Boston-based group that tracks CEO compensation.

Since 2000, the gap has narrowed slightly, the study found.

Consulting
firm Mercer LLC's annual survey found that, on average, CEO
compensation actually declined in 2007, with executives at the largest
companies taking the biggest hits as financial performance also
declined.

Unintended effect

New SEC requirements in
the 1990s forcing companies to detail what they pay executives were
intended to slow the growth rate of compensation by shining more light
on the subject, said Eric Jackson, president of Florida-based activist
investment firm Ironfire Capital. Instead, that openness might have
helped push the growth. "The unintended effect was that it sort of
became this constant escalating match of who is going to be paid the
most," Jackson said.

Prompted by shareholders, a small number of
companies this year granted those investors a say in executive pay
packages. Insurer Aflac Inc. of Columbus, Ga., last month became the
first major American company to give shareholders a vote on
compensation.

Apple Inc. in Cupertino, Calif., and printer company Lexmark International Inc. in Lexington, Ky., gave investors an advisory say, though not a direct vote.

Similar proposals were shot down this year at a number of companies, such as Citigroup Inc. and Morgan Stanley, both New York City-based financial giants.

The
House of Representatives in 2007 passed the Shareholder Vote on
Executive Compensation Act, which would require that company
stockholders get an advisory vote on executive compensation. Sens.
Barack Obama, D-Ill., and Hillary Clinton, D-N.Y., have introduced
similar legislation in the Senate in the past year.

With CEO compensation averaging nearly $13 million at Fortune 500 companies, critics abound.

"Is
anybody worth that kind of money?" asked Gary Bonadonna, manager of the
Rochester Regional Joint Board of UNITE-HERE, which represents about
1,400 tradespeople working at Xerox's Webster campus. "I don't think
so."

But given what Xerox's peers pay their executives, Bonadonna
said, "I don't think (Xerox) is out of whack. I don't have an issue
with it. If they were attacking our wages, it'd be a different story."

Xerox
retirees upset about the cuts the company has made in health care
benefits get particularly fired up each spring when Xerox issues a
proxy statement that details, among other things, what the company's
top bosses made, said Dave Ferren, vice chairman of the Penfield-based
Association of Retired Xerox Employees.

Executives are paid so
much because they know a lot and do a lot, said James A. Brickley,
Gleason Professor of Business Administration at the University of
Rochester and an expert on corporate governance.

"I'm sure you
can find some abuses in CEO pay," Brickley said. But running a large
company is such a specialized job, he said, that handsome pay packages
are necessary to attract and retain top talent.

Pointing to
privately held companies that have hired CEOs from publicly traded
companies, such as General Electric Co. executive David Calhoun leaving
in 2006 to head Dutch market research firm VNU for a reported $100
million, Brickley said the private firms with hands-on ownership "are
not going to go out and overpay a CEO's salary."

Compensation for
heads of similar private and public manufacturing companies, for
example, will usually be comparable, said Peter Oppermann, senior
executive compensation consultant with Mercer LLC in New York City.

Oppermann
said the increased public attention paid to executive compensation
hasn't curbed the growth of pay packages but "has ensured that
companies have paid for performance."

Brickley added: "There's a
lot of focus and argument over CEO pay, but in reality that represents
an incredibly small fraction of the overall value of these companies.
... So the pay is over the market rate. Is that as big an issue as not
getting the right person in there?"

Set by boards

Executive
pay can be a touchy subject for many companies. Major employers
including Xerox and Constellation Brands Inc. declined to discuss the
issue beyond pointing to their proxy statements.

Ultimately,
executive compensation is set by companies' boards of directors. And
typically those boards adopt packages that are designed to attract and
motivate qualified executives and that are based on an assessment of
corporate and individual performance. Companies also look to peers to
help determine what they should be paying.

Many of those highly
paid top executives are among a company's major shareholders. Patrick
White and Peter Ettinger, CEO and president, respectively, of Document
Security Systems, combined own more than 8 percent of the
Rochester-based company.

At Perinton-based telecommunications
company PAETEC Holding Corp., CEO Arunas Chesonis owns 8.3 million
shares, or almost 6 percent of the total. And Kodak's Perez owns 1.2
million shares, though that amounts to less than 0.5 percent of the
common stock, and has access to 1 million more through options.

Compared
to companies around the globe, UR's Brickley said, American CEOs are
more highly paid. But that can make for an apples-and-oranges
comparison because "some (foreign) companies ... deal in less complex
environments."

And as markets around the globe become more integrated, Brickley said, "the pay packages are tending to converge more."

MDANEMAN@DemocratandChronicle.com