Executive pay packages surged in 2010, as Houston’s largest companies started recovering from the recession and rewarded their leaders with big cash bonuses and valuable stock awards.
The median executive package reached $1.76 million last year among more than 500 highest-paid leaders of publicly traded companies in Houston, according to a survey conducted for the Houston Chronicle by Longnecker & Associates.
That median jumped 24 percent in one year, outpacing pay growth for chief executive officers nationwide.
The top factor in the rise was a 43 percent increase in the median value of stock options and awards granted to executives. That value reached $742,569 in 2010. The median bonus climbed 32 percent, hitting $400,550.
Nationally, median total compensation for top chief executiveofficers grew 11 percent in 2010, according to Hay Group, a management consulting firm. Its analysis — which was independent of the one conducted for the Chronicle by Longnecker- covered packages for leaders of the nation’s 350 largest public companies by revenue.
The Longnecker study compiled executive salary information for Houston’s top 125 public companies by revenue.
In addition to salary, bonuses, stock options and equity incentives, executive compensation packages can include employer contributions to retirement plans, deferred compensation and perquisites like use of the company jet and financial planning services.
Energy executives were the big winners on the Houston list- although a manufacturing executive claimed the top spot. Seventy-six of the 100 top-paid executives in Houston were with corporations involved in oil field work or pipelines.
Houston’s top executive suites remain male-dominated. The highest-ranking woman on the 2010 list, at No. 150, was Janet Clark, executive vice president and chief financial officer of Marathon Oil Corp., who received $3.2 million in total compensation.
Just 23 women ranked in the top 500, up from 19 in 2009.
Longnecker & Associates compiled the pay data from corporate documents filed with the U.S. Securities and Exchange Commission.
The Houston company is a consultant on executive compensation to public and private corporations and nonprofit organizations. Chairman and CEO Brent Longnecker sits on the board of ATP Oil & Gas Corp., which has five executives on the Houston top-paid list.
Longnecker senior consultant Shane Krantz noted that the technical nature of the oil and gas industry boosts compensation for employees, from entry-level engineers to top executives. Employers are competing for a small pool of employees with specialized knowledge and experience in the industry.
And because the industry is geographically concentrated, boards shell out larger incentives to prevent neighboring competitors from luring their executives away, he said.
“There are so many energy companies in Houston, and they are all fighting for talent,” Krantz said. “The people across the street are pulling them away for any amount of money.”
Not in the energy industry
But for the first time since 2004, Houston’s highest-paid corporate leader isn’t in the fossil fuels business. Kirk Hachigian – CEO, chairman and president of lighting manufacturer Cooper Industries – took the No. 1 spot from last year’s top earner, Anadarko Petroleum Corp. CEO James Hackett.
Hachigian, who has led Cooper Industries for six years, received $25 million in total compensation in 2010, up 133 percent from 2009.
The last business leader outside the energy industry to take the top pay spot was former Continental Airlines CEO Gordon Bethune in 2004. He hit the pinnacle thanks to hefty retirement payouts that contributed to a $34.3 million pay package in his final year.
Hachigian’s payday was buoyed by a cash bonus of more than $1 million and a stock award worth $8.1 million.
Neither payout was tied to preset performance goals, bucking the trend among corporate boards nationally. They are relying more on objective measures, instead of subjective judgment, to pay executives, said Cory Morrow, principal in the executive compensation practice of Hay Group.
Among the top executives in the Longnecker survey, 28 percent received discretionary bonuses last year. That declined from 2009, when 32 percent received the subjectively valued payouts.
Meanwhile, performance-based bonuses are on the rise. More than 70 percent of the top executives received bonuses tied to performance measures, like company earnings and revenue growth, up from 68 percent in 2009.
The Cooper Industries proxy, which details executive compensation, didn’t give a specific reason for Hachigian’s big bonus. The vice president of human resources, Heath Monesmith, pointed to Cooper’s general financial improvement in 2010. Cooper Industries’ net income for the year rose 1 percent to $444 million. Its total return to investors last year was 40 percent.
The use of discretionary bonuses among Houston’s top earners is “unusually high” compared with national rates, Morrow said.
“Shareholders want to see that lined up with performance,” he said.
The same is true of stock awards. Nationally, boards moved away from purely time-vested stock awards aimed at retaining executives. These days, they favor awards that require company leaders to meet long-term goals.
Hachigian, 52, received a time-vested award of restricted stock units. Unlike stock options, restricted stock awards retain value even when price falls. But executives can’t access them for a set number of years, providing incentive for them to stay with the company.
Seven years to go
Monesmith noted that Hachigian won’t fully realize the $8.1 million stock award unless he stays with Cooper Industries for another seven years. He’ll receive a third of the award in each year 2016, 2017 and 2018.
“The board and shareholders want him to stay,” Monesmith said. “It’s a one-year deal in an effort to try to retain him.”
But many Cooper Industries shareholders objected to the executive pay plan. More than 49 percent of voting shareholders rejected the compensation packages in an advisory vote required by new federal regulations. The Dodd-Frank Act of 2010 allows shareholders to give their say on executives’ pay annually, though boards don’t have to adjust pay packages based on those votes.
Monesmith said the company’s investors took issue with Hachigian’s large award of restricted stock units. Hachigian did receive performance-based pay, too – nearly $3 million in cash and $7.2 million in stock awards. Those values were on par with what he got in previous years.
Hackett, last year’s No. 1 executive earner, and three other Anadarko executives took pay cuts in 2010. Even though the company’s shareholders saw 23 percent return for the year, the board reduced the value of stock awards granted to top Anadarko executives to put executive pay in line with competitors. Hackett’s award was reduced by about 20 percent, contributing to an 11 percent reduction in his overall compensation.
“These decisions were primarily based on competitive market data,” Anadarko spokesman John Christiansen said.
A 42% decrease
Another regular top earner, Nabors Industries CEO Eugene Isenberg, saw reduced pay in 2010. Isenberg has reached No. 1 in the executive pay ranking three times since 2006. But he took a 42 percent pay cut in 2010 and fell to No. 10.
Isenberg’s $19.9 million bonus made up 85 percent of his compensation in 2009. In 2010, it dropped to $9.7 million, or 72 percent of his total compensation. His annual bonus is calculated as a percentage of the company’s cash flow, according to the company’s SEC filing.
Isenberg agreed to reduce that percentage in 2010.
“The company grew faster than anyone expected, and Mr. Isenberg recognized that the formula was generating larger-than-normal payouts,” said Dennis Smith, Nabors director of corporate development.
Isenberg also receives $600,000 in deferred compensation for each quarter that he stays with the company through the first quarter of 2019. Deferred compensation is used as a retention tool and also allows executives to delay taxation on the income.
Apache Corp. Chairman and CEO G. Steven Farris took the No. 3 spot among top-paid Houston executives, with $19.3 million. His 151 percent pay increase was largely a result of bigger stock awards and options. The board also granted him a $3.25 million bonus in 2010, 30 percent larger than in 2009, citing a year of record acquisitions worth $11 billion.
ConocoPhillips executives claimed three of the top 10 spots on the executive pay ranking. Chairman and CEO James Mulva received a 25 percent hike in compensation in 2010, putting him at $17.9 million and No. 4 on the top-earners list. Now-retired president John Carrig was No. 9 with a $14.4 million pay package.
So you’re new here
Even newcomers at the oil giant can see big money.
Alan Hirshberg, ConocoPhillips’ new senior vice president of planning and strategy, came on board in October and ranked No. 8 for 2010 with $14.9 million in total compensation.
Hirshberg got $173,011 in salary for those three months, in line with other ConocoPhillips senior vice presidents. It was his $9.4 million signing bonus that launched him into the top tier. The bonus compensated Hirshberg for pay he forfeited when he left Exxon Mobil Corp. for the new job, a ConocoPhillips spokesman said.
According to an SEC filing, he received $3 million last year and the rest will vest over the next three years.