Top Performing Companies: $2 - $4 Billion Revenue In Depth Review: CEO & CFO Compensation and Board Compensation

Transcription

1 Top Performing Companies: $2 - $4 Billion Revenue In Depth Review: CEO & CFO Compensation and Board Compensation 2008 Overview MullinTBG and Strategic Compensation Group jointly analyzed the compensation and benefits received by the CEOs, CFOs and Boards of Directors at 40 top performing companies with revenues between $2 and $4 billion ( Top 40 ). Performance was measured using the weighted average shareholder returns for the 1-year, 3-year and 5-year periods ending December 31, MullinTBG 2029 Century Park East, 37th Floor Los Angeles, California Tel: Strategic Compensation Group LLC Chicago: Los Angeles:

2 Executive Summary There are many new elements of a C-level executive s total compensation that were reported for 2007 as a result of the SEC s new disclosure requirements. This MullinTBG/Strategic Compensation Group Top 40 report acknowledges these changes and presents an analysis of ongoing trends and broader shifts in executive compensation and benefit practices. The compensation mix (proportion of salary, bonus, equity, and benefits) that comprises CEO and CFO pay is similar, however, the CEO mix places a heavier emphasis on long-term incentives, which amounts to more than one half of total compensation. Even Board members derive over one half of their pay from equity incentives supplemented by an annual retainer and meeting fees. SERPs and voluntary deferred compensation plans are sponsored by a majority of the Top 40, while financial services and executive life insurance benefit offerings have become less prevalent. Although a smaller percentage of compensation overall, median CEO and CFO salaries in the Top 40 were $800,000 and $399,000, respectively. Median total cash compensation was $1.85 million and $780,000, respectively. Median total overall compensation was $5.6 million and $1.6 million, respectively. Total annual CFO compensation was roughly 28% of CEO compensation (at all measured percentiles). Median total compensation for Board members was about $163,000. Stock option grants have waned in popularity, but are still used by most companies. Overall, CEOs and CFOs have accumulated significant equity positions during their respective tenures, putting their economic interests directly in line with shareholders for whom they created, on average, more than $1.7 billion in company value last year and $3 billion cumulative over the past three years. About MullinTBG MullinTBG is the nation s largest provider of nonqualified executive benefits with more than 650 customized plans and $21 billion in total assets (as of 03/31/2008) representing over 56,000 corporate executives. An industry pioneer with more than 50 years of experience, MullinTBG is one of the nation s premier full-service firms to which Fortune 1000 and emerging growth companies can confidently outsource all aspects of their executive benefit, compensation, and retirement income planning needs to effectively attract, retain and reward key executives. About Strategic Compensation Group Strategic Compensation Group specializes in providing expert objective consulting on all aspects of executive compensation, performance measurement and motivational incentives. With over 100 years of combined experience among its consultants, Strategic Compensation Group develops creative compensation and benefit strategies that help companies effectively attract, retain and motivate their highly valued employees. Top 40 Study Methodology Analysis for this study was based on the most recent proxy and 10K filings as of May 2008 as well as annual reports, published stock prices, etc. The following elements of compensation were analyzed: Salary for most recent fiscal year paid in most recent fiscal year and target bonus listed in the Grant of Plan Based Awards table The value (using Black-Scholes for stock options) of all long-term incentive awards using either the amount granted during most recent fiscal year or the FAS 123R expense. Benefit amounts as disclosed in proxy Fiscal year end values of stock options and restricted shares held by the executive, as disclosed in the proxy statement. Beneficial Ownership as disclosed in the proxy, which includes stock ownership, restricted shares, and the face value of options that are exercisable within 60 days. When earnings data/compensation was restated, the most recent data was utilized. Price per share data utilized was the closing price on the last trading day of each year. Diluted EPS data (exluding extraordinary items) reported in the annual reports of each company was used. 1

3 The 40 Top Performing Companies (with $2 - $4 Billion Revenue) Abercrombie & Fitch Co. Airgas Inc. Albemarle Corp. Allegheny Energy Inc. Alliance Data Systems Corp. Ametek Inc. Amphenol Corp. Arch Coal Inc. Cleveland-Cliffs Inc. Consol Energy Inc. Dentsply International Inc. Diamond Offshore Drilling Inc. Dick s Sporting Goods Inc. Energizer Holdings Inc. Flowserve Corp. FMC Corp. Greif Inc. Harsco Corp. Iron Mountain Inc. Joy Global Inc. Juniper Networks Inc. Lennox International Inc. Lincoln Electric Holdings Inc. Martin Marietta Materials Inc. National Fuel Gas Co. Noble Corp. Noble Energy Inc. Quanex Corp. Quanta Services Inc. Questar Corp. Roper Industries Inc. Ruddick Corp. Saks Inc. Schnitzer Steel Industries Inc. Service Corp International Sigma-Aldrich Corp. Silgan Holdings Inc. T. Rowe Price Group Inc. TD Ameritrade Holding Corp. United States Cellular Corp. Industries Equipment & Machinery 6 Energy 5 Chemicals 4 Hi-Tech 4 Utilities 4 Building & Construction 3 Retail 3 Diversified Financials 2 Materials 2 Metals & Mining 2 Food, Drink & Tobacco 1 Health Care 1 Household Products 1 Services 1 Telecommunication 1 Headquarters Pennsylvania 8 Illinois 1 Texas 8 Maryland 1 Ohio 4 Massachusetts 1 Missouri 3 Nebraska 1 Connecticut 2 New York 1 North Carolina 2 Oregon 1 Alabama 2 Utah 1 California 1 Virginia 1 Florida 1 Wisconsin 1 On average, the CEO and CFO manage a $5.4 billion enterprise with $2.7 billion in sales and 8,400 employees. They helped to create a per company average of more than $1.7 billion in shareholder value during the last year, and $3 billion cumulative over the past three years. Top 40 Summary Statistics Revenue* Market Capitalization* Number of Employees 50th Percentile $2,691 $5,393 8,400 75th Percentile $3,311 $8,592 15,000 25th Percentile $2,289 $4,163 5,061 Largest $3,946 $18,154 99,000 * Figures in millions Smallest $2,010 $1,784 1,398 Source: Standard & Poors and company filings. 2

4 Performance On average, Top 40 companies performed very well over the past one- and three-year periods. For calendar year 2007, shareholder return at the 50th percentile was over 38% and over 110% over the previous three-year period. Top quartile performance was outstanding. 60% 1 Year Performance Comparison 50% 40% Peer 25th %ile Peer 50th %ile Peer 75th %ile 30% 20% 10% 0% Shareholder Return Sales Diluted EPS Operating Cash Flow 3 Year Performance Comparison 180% 160% 140% Peer 25th %ile Peer 50th %ile Peer 75th %ile 120% 100% 80% 60% 40% 20% 0% Shareholder Return Sales Diluted EPS Operating Cash Flow Note: Diluted EPS fi gures excludes extraordinary items. 3

5 CEO/CFO Compensation Overview The overall pay mix for CEOs places a heavier emphasis on long-term incentives than that for CFOs. CFO compensation amounts to about 28% of CEO compensation across the board. Performance-based incentives comprise the largest portion of overall pay, making it critical for companies and boards to establish and verify for shareholders what specific performance measures and goals are utilized to determine these pay levels. Pay at the 75th and 90th percentiles was significantly larger than at the 50th percentile. CEO Pay Mix - Actual Pay CFO Pay Mix - Actual Pay Salary 14% Salary 24% Performance Pay (83%) Performance Pay (75%) LTI 64% 19% LTI 51% 18% 24% CEO Pay Mix - Target Pay (a) CFO Pay Mix - Target Pay (a) Salary 14% Salary 25% Performance Pay (83%) Performance Pay (74%) LTI 65% 18% LTI 53% 21% (a) Target Pay is based on target bonus. About 80% utilize a target bonus. CEO COMPENSATION ANALYSIS 2007 Compensation Salary Annual Annual Percent Top 40 CEOs 50th 75th 90th $800 $1, % $954 $1, % $1,026 $2, % Total Annual Cash $1,854 $2,861 $3,828 Long-Term Incentive $3,576 $5,720 $7,389 Pension & Deferred Comp. $155 $811 $1,569 Total Compensation $5,584 $9,392 $12,786 Incentive Leverage 83% 81% 80% Long-Term Incentive % Annual % 64% 19% 61% 20% 58% 22% Total Comp. as % of Sales 0.22% 0.31% 0.37% CFO COMPENSATION ANALYSIS 2007 Compensation Salary Annual Annual Percent Top 40 CFOs 50th 75th 90th $399 $381 96% $454 $ % $507 $ % Total Annual Cash $780 $916 $1,167 Long-Term Incentive $815 $1,594 $2,037 Pension & Deferred Comp. $7 $115 $205 Total Compensation $1,602 $2,626 $3,410 Incentive Leverage 75% 78% 79% Long-Term Incentive % Annual % 51% 24% 61% 18% 60% 19% Total Comp. as % of Sales 0.07% 0.09% 0.13% 4

6 Executive Benefits As in years past, executive benefit plans continued to be popular, with 80-85% of companies sponsoring some form of nonqualified retirement program. A solid 70% provide a voluntary deferred compensation program and approximately 60% provide a pension or supplemental executive retirement plan (SERP). The prevalence of financial services and additional life insurance has waned, although some companies used cash flex dollars to reimburse executives for financial planning, tax preparation, and supplemental life insurance premiums. Overall, the value of CFO benefits averaged 16% of the CEO s. Executive Benefits Overview (Prevalence Among Top 40 Companies) Pension SERP Deferred Compensation Some Form of Retirement Financial Services Executive Life Insurance CEO 62.5% 70.0% 85.0% 32.5% 25.0% CFO 55.0% 67.5% 80.0% 27.5% 17.5% CEO Benefits Year-End Total Balance Annual Corporate Outlay CEO Benefits Pension SERP Deferred Compensation Total Retirement* Financial Services Executive Life Insurance Average $4,389 $5,168 $7,483 $105 $23 50th Percentile $3,534 $2,827 $5,633 $48 $12 75th Percentile $5,283 $6,390 $12,493 $88 $36 90th Percentile $12,453 $14,372 $16,622 $167 $59 CFO Benefits Year-End Total Balance Annual Corporate Outlay CFO Benefits Pension SERP Deferred Compensation Total Retirement* Financial Services Executive Life Insurance Average $802 $870 $1,286 $36 $9 50th Percentile $351 $505 $559 $16 $10 75th Percentile $1,006 $900 $1,239 $37 $12 90th Percentile $2,263 $1,935 $4,179 $64 $16 * Total not equal to sum due to statistical analysis. Note: Dollar values include only those executives who have such respective benefi t. 5

7 BONUS COMPENSATION The typical target bonus for the CEO ranged from % of salary, and for the CFO, %. On average, bonuses actually paid were about 132% of salary for CEOs, and about 96% of salary for CFOs, which is consistent with the Top 40 s positive performance results. The maximum bonus opportunity was from times the target. CEO BONUS CEO Salary Target Opportunity Target Percent Actual Actual Percent Actual as % of Target Max Opportunity Max as a % of Target Average $828 $1, % $1, % 117% $2, % 50th % $800 $1, % $1, % 105% $2, % 75th % $954 $1, % $1, % 125% $2, % 90th % $1,026 $1, % $2, % 147% $3, % Prevalence of Target 78% CFO CFO Salary Target Opportunity Target Percent Actual Actual Percent Actual as % of Target Max Opportunity Max as a % of Target Average $404 $392 97% $ % 107% $ % 50th % $399 $320 80% $381 96% 119% $ % 75th % $454 $450 99% $ % 103% $ % 90th % $507 $ % $ % 123% $1, % Prevalence of Target 83% Note: Target values include only those executives who have such respective benefi t. 6

8 Long-Term Incentives, Equity Holdings and Dilution The use of performance-based long-term incentives has grown to make up the largest portion of Top 40 CEO and CFO compensation. Most companies offered at least two forms of long-term incentives during the last fiscal year, and the most widely used were stock options and long-term performance-based incentives (stock or cash). Data reveals that CEOs and CFOs have accumulated significant equity investments in their companies, which serves to align a larger share of their compensation and personal wealth with stock performance and the economic interests of company shareholders. Long-Term Incentive Statistics Use One Plan Only Two or More Plans Stock Options Restricted Stock Long-Term Performance CEO 27% 73% 77% 53% 63% CFO 25% 75% 81% 58% 58% CEO Total Equity Holdings CEO Equity Options & Restricted Equity Beneficial Ownership* Average $45,503 $92,375 50th Percentile $20,221 $29,759 75th Percentile $49,484 $106,247 90th Percentile $106,107 $199,654 CFO Total Equity Holdings CFO Equity Average 50th Percentile 75th Percentile 90th Percentile Options & Restricted Equity/ Percent of CEO $5,812/ 13% $3,943/ 20% $8,631/ 17% $10,936/ 10% Beneficial Ownership*/ Percent of CEO $7,944/ 9% $5,544/ 19% $11,872/ 11% $16,552/ 8% * Benefi cial Ownership as disclosed in the proxy statement. Generally it includes stock ownership, restricted shares, and face value of options that are exercisable within 60 days. The annual run rate has receded in recent years, likely in response to FAS 123R and the greater use of restricted shares and performance shares. Common Shares Outstanding Gross Run Rate (1) Most Recent Year Past 3 Year Average Prior Grants Outstanding (2) Overhang Shares for Future Grants (3) Total (4) 25th 59,682, % 0.32% 2.48% 2.01% 4.49% Average 135,354, % 0.79% 4.96% 4.01% 8.98% 50th 94,734, % 0.66% 3.93% 3.32% 7.25% 75th 169,120, % 0.98% 6.07% 5.36% 11.43% 90th 263,207, % 1.42% 9.15% 9.16% 18.30% 1. Gross Run Rate is calculated by dividing the # of Shares/Options Granted by Common Shares Outstanding. 2. Overhang From Options Outstanding is calculated by dividing the # of Shares/Options Outstanding at End of Year by Common Shares Outstanding. 3. Overhang From Shares Available for Future Option Grant is calculated by dividing the # of Shares Available for Future Option Grant at End of Year by Common Shares Outstanding. 4. Combined Overhang is calculated by adding Overhand From Options Outstanding and Overhang From Shares Available for Future Option Grant. 7

9 Sources of Board of Directors Compensation Similar to the trend seen with CEOs and CFOs, equity incentives constitute the largest portion of Board of Director pay, representing 57% of total compensation. All Top 40 companies grant an annual retainer (about 12% doing so in place of meeting fees), and 85% provide equity positions to Board members in the form of either restricted shares or stock options. A voluntary deferred compensation program is provided to directors at 55% of Top 40 companies. Summary of Director Compensation Board Compensation Average Pay Mix 50th Percentile 75th Percentile Percent Using Annual Retainer $41,000 $51, % Board Meeting Fee $1,500 $2,000 83% Committee Meeting Fee $1,500 $1,500 83% Committee Retainer $5,000 $9,000 13% Chair Retainer $7,000 $10,000 83% Total Cash (a) $71,000 $91,250 Equity (b) $92,283 $123,308 85% Total Compensation $163,283 $214,558 Average Actual Total Compensation $158,123 Annual Retainer 32% Meeting Fee 11% Equity (b) 57% Audit Committee 50th Percentile 75th Percentile Percent Using Committee Meeting Fee $1,500 $1,500 85% Committee Retainer $6,250 $10,250 30% Chair Retainer $10,000 $17,250 95% Most companies pay a Meeting Fee and a Chair Retainer to Audit Committee members. The Chair Retainer is generally larger than that provided to other committees. (a) Total Cash is normalized based on 6 board meetings, 6 committee meetings, and Chair of one Committee and member of another Committee. (b) Equity does not include a portion of the annual retainer that may be paid in equity nor the elective deferral of cash compensation into equity. GOVERNANCE PRACTICES Have Lead Director 45% Split the Chairman & CEO Role 26% Average Number of: Board Meetings 6 Board Members 10 Independent Board Members 8 Committees 4 Audit Committee Meetings 9 Compensation Committee Meetings 6 Equity Compensation Practices Use of Equity 85% Stock Options Stock Grants 38% 63% One Time Equity Grant 25% Stock Ownership Policy 55% Elect Stock Instead of Cash 15% 8

10 MULLINTBG OFFICE LOCATIONS: Client Service Center and Headquarters: Los Angeles: Regional Offices: Baltimore: Boston: Chicago: Dallas: New York: Newport Beach: STRATEGIC COMPENSATION GROUP OFFICE LOCATIONS: Chicago: Los Angeles: Securities offered through M Holdings Securities, Inc., a Registered Broker/Dealer, Member FINRA and SIPC. MullinTBG and MullinTBG Insurance Agency Services, LLC are owned and operated independently from M Holdings Securities, Inc MullinTBG. All Rights Reserved.