Lehigh Valley executive pay on rise [The Morning Call (Allentown, Pa.)]
(Morning Call (Allentown, PA) Via Acquire Media NewsEdge) Sept. 08--Most executives at publicly traded companies in the Lehigh Valley got pay raises last year.
On average, they took home 4 percent more in 2012 than the year before -- though many enjoyed much bigger gains.
PPL Corp. Chief Financial Officer Paul Farr got one of the biggest raises, an increase of 45 percent, bringing his pay to $3.8 million.
Even so, he was but the second highest-paid individual at PPL. The highest paid at the Allentown electric company was Chief Executive William Spence, who earned more than twice as much: $8.1 million.
Air Products CEO John McGlade was among the minority of executives whose pay was cut. He earned 19 percent less than he did the year before at the Fortune 500 company in Trexlertown. However, he still made more than $1 million more than Spence.
That made 59-year-old McGlade, whose salary, stock awards and other compensation amounted to $9.2 million, the highest-paid executive in the Lehigh Valley last year, according to a survey conducted for The Morning Call by Equilar, an executive compensation and corporate governance data firm in Redwood City, Calif.
On average, executives in the area earned $1.6 million, up 4 percent from the previous year, though the figure is skewed by the highest-paid executives. The median, or middle-most, executive made about $900,000, down nearly 2 percent.
Nationally, executive pay took an even bigger jump, rising 6.5 percent at large companies and 5.7 percent at medium-size companies, Equilar found. The trend has given rise to questions about fairness and income disparity as lower wage earners struggle to regain ground lost in the recession.
Since the start of the Great Recession in December 2007, the median U.S. household income has dropped 6.1 percent, or $3,400, to $52,100, according to a report released last month by Sentier Research, an Annapolis, Md., a firm that analyzes household economic data.
"[Workers] are feeling the pressure in their income, yet they see the salaries of executives rise," Lehigh University business professor Doug Mahony said. "They feel like they are being attacked."
Companies say high executive compensation enables them to attract and maintain the talent needed to run major corporations. PPL, the Lehigh Valley's other Fortune 500 company, uses pay to stay ahead of its competitors, company spokesman George Lewis said in an email.
"Compensation for PPL executives is designed to be competitive with companies of similar size and scope -- companies we compete with for talent -- so we can attract qualified executives to run a company with annual operating revenues of more than $12 billion," he said.
Of the 40 top-paid executives at nine publicly traded Lehigh Valley area companies surveyed, 25 got raises last year, according to The Morning Call-Equilar Executive Pay Study. Nineteen earned more than $1 million.
All but two of the executives are men, and none of the chief executives is a woman. Nationally, women hold 4.6 percent of the CEO positions at the 1,000 biggest publicly traded companies, according to Catalyst, a nonprofit group in New York that promotes the interest of professional women.
Ten Lehigh Valley executives took pay cuts, including some steep reductions like McGlade's because of reduced stock awards and the absence of bonuses. The remaining six were not in the same position long enough for year-to-year comparisons to be made.
Pay for Lehigh Valley executives varies widely because of the region's mix of companies, big and small. They range from Fortune 500 companies with multibillion-dollar annual revenues, such as PPL and Air Products, to local businesses such as Harleysville Savings Financial Corp., which had revenues of $35 million last year.
The survey, based on information the companies disclose to the U.S. Securities and Exchange Commission, shows the complex way in which top executives are rewarded. While most workers get an hourly wage or salary, executive compensation includes both a base pay and mix of stock awards, cash bonuses and company perks such as country club dues and car allowances.
Stock awards have become a bigger part of the mix in recent years as companies seek to align executive pay with the interests of their shareholders, said Aaron Boyd, head of research for Equilar. When executives own a big stake in a company, he explained, they have a powerful incentive to increase the value of the company's shares.
"You want to make sure the CEO is performing," he said.
Most of the compensation for PPL's Spence -- who became CEO in November 2011 -- and Farr, for example, is in the form of incentives based on earnings per share, stock price growth and dividend growth, Lewis noted.
"More than 80 percent of Bill Spence's compensation is at risk. For Paul Farr, it's 75 percent," he said. "These incentives are paid only if PPL achieves performance targets set by a board committee that consists entirely of independent directors."
Though McGlade is the highest-paid executive in the Lehigh Valley, his compensation also is in line with that of executives at similar companies throughout the country, Air Products spokesman George Noon said in an email.
Air Products, he explained, uses "an independent, third party to benchmark executive pay."
The bulk of McGlade's $9.2 million pay package was in company equity -- specifically stock and stock options totaling $7 million. His base pay, the cash he received for 2012, was $2.1 million.
"Our CEO and other executive compensation is linked to performance against metrics that drive shareholder value, specifically earnings growth, return on capital and stock performance," Noon said.
Air Products' stock, however, has posted lackluster returns during McGlade's tenure, putting it in the crosshairs of activist investor Bill Ackman, who has moved to shake up the company.
During the summer, Ackman acquired -- via his Pershing Square Capital Management hedge fund in New York -- nearly 10 percent of Air Products' stock. Generally, activist investors target companies they believe could be made more profitable if better managed. To this end, they pressure companies to adopt what they see as necessary changes, and the first change, in many cases, is firing the CEO.
Sometimes a company's stock price rises or falls for reasons that have little to do with its CEO, or even with the company itself. During a bull market, such as that of the past two years, most stocks appreciate in value, lifted by the rising tide of a growing economy.
"Just the fact that the stock prices are going up has increased pay," Boyd said.
Few American executives are inventors or visionaries in the mold of, say, Steve Jobs. Rather, most have risen to the top, survivor-like, through a process of attrition.
Nonetheless, they make significantly more than their counterparts in other parts of the world, where different cultural norms place greater limits on what is acceptable, Lehigh's Mahony said.
A study by the AFL-CIO, which represents more than 50 trade unions, found that CEOs at the largest U.S. companies earned an average of $12.3 million last year, or roughly $7,000 a hour -- which is 354 times more than the typical American worker, who made $34,645 last year.
In Germany, CEOs make 147 times as much as the average worker; in England, they make 84 times as much; and in Japan, they make 67 times as much, according to the AFL-CIO.
Using slightly different criteria, other groups have come up with different multiples. For example, the Economic Policy Institute, a left-leaning research center in Washington, D.C., concluded CEOs at U.S. companies earned 273 times more than their average employee.
The overall trend, however, is not in question: The pay gap between American CEOs and workers is massive by world standards, as well as by historical standards.
In the United States during the mid-1960s, a period of sustained economic growth, CEO pay was a mere 20 times that of the average worker, according to the Economic Policy Institute.
Mahony said today's high executive pay is driven by the interests of both companies and executives.
Companies may be well-served by paying more to attract talent in a highly competitive market for management expertise. High executive pay also may encourage employees to aspire to reach the top rungs of the corporate ladder.
But it may also be artificially inflated by the very people -- company directors -- who are responsible for controlling it, since many directors are or have been executives themselves.
"You could argue that they have a vested interest in seeing the salaries go up," Mahony said. "You are already part of that club, and you have a strong interest in seeing the value of that club maintained."
(c)2013 The Morning Call (Allentown, Pa.)
Visit The Morning Call (Allentown, Pa.) at www.mcall.com
Distributed by MCT Information Services
[ Back To Technology News's Homepage ]