Banking & Finance  July 4, 2008

It pays to have the corner office

The compensation of Northern Colorado’s highest paid public CEO is $1 million more than the next closest competitor but still only a quarter of the median pay for S&P 500 CEOs.

Tom Gendron, CEO of Woodward Governor Co., was the region’s highest paid public company CEO in 2007. His compensation package – consisting of salary, incentive pay, options and miscellaneous items – was worth $2.4 million last year.

A large element of the compensation package, $703,409 to be exact, was in option awards. The amount is calculated for financial reporting purposes and does not necessarily reflect an amount the executive takes home.

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Gendron’s base pay for 2007 was $572,116 – up 14 percent from the previous year – but it was his incentive plan compensation that made up a bulk of the package. Gendron received $595,101 in incentive compensation and $450,000 for the cash component of a long-term management incentive plan that was established in 2006.

“The base pay is the foundation of a compensation package. It’s usually impacted by tenure,´ said Alexander Cwirko-Godycki, research manager with Equilar, a California-based executive compensation consulting firm. “Salaries should not be viewed in any way as an indicator of performance.”

Instead, the bonus element is usually designed to reflect short-term performance.

A slowing economy at the end of the year likely had a direct impact on bonuses. In 2007, S&P 500 CEOs received a median aggregate bonus of $1,837,080, down 4.9 percent from 2006, according to Equilar data.

“What we saw at the end of ’07 was an immediate effect on CEO bonuses,” he said. ‘It was the first time in several years that bonuses were down.”

Cwirko-Godycki added that the downturn only touched certain industries, such as finance, resulting in bonus declines. The energy industry, for one, finished the year solidly. Woodward, which manufactures energy control devices, ended its fiscal year on Sept. 30 with $98.2 million in profit and a stock price that nearly doubled. The bonus portion of Gendron’s compensation package made up 43 percent of his total pay.

One element missing from Gendron’s compensation package is stock awards. Mike Schablaske, Woodward’s director of investor relations, said that it has been company policy to not offer stock as part of the compensation package in the recent past.

Cwirko-Godycki said that a trend during the past year for large public companies has been to offer fewer option awards and more stock awards. The pressure to move away from option awards began about three years ago with the approval of a financial accounting standard – FAS 123R.

“Essentially, options went from being free to having a direct cost,” he explained. As most executives would prefer stocks over options, and options were more dilutive once exercised, many companies made the switch.

CEO base pay up

Heska Corp. CEO Robert Grieve did not receive stock awards as part of his compensation package, and his base salary of $377,667 was a huge part of his $449,112 total compensation.

On the flip side, UQM Technologies Inc. CEO William Rankin received the lowest base salary of the four Northern Colorado public company top executives with $311,979. However, he took home the highest stock award amount with $261,250, and his option awards declined from $140,069 during the last fiscal year to $36,986. Coupled with a $100,000 bonus, Rankin pulled in a total compensation package worth $731,460 last year.

Advanced Energy Industries Inc. CEO Hans Georg Betz also received stock options, but the $173,154 award was the smallest part of his pay package. His base salary of $549,730 was the largest portion of his $1.4 million compensation.

Equilar’s report on CEO compensation reported a 1.3 percent increase for S&P 500 executive pay. Compensation growth from 2005 to 2006 was about 6 percent.

“Generally speaking, what we saw as a change in pay for CEOs is in line with the major performance matrices,” Cwirko-Godycki said. Even though revenue, net income and earnings per share were generally positive for the S&P 500 companies last year, growth had obviously slowed.

Gendron’s total compensation package is not comparable year-over-year, since this is the first reporting period for Woodward applying the new reporting standards, but his base salary increased 14 percent. Only UQM’s Rankin saw a compensation increase last year, up 4 percent. Grieve and Betz both saw a year-over-year decline in compensation.

Grieve’s total compensation was down about 35 percent from $689,460 in 2006. His base pay increased more than 10 percent, but his incentive plan compensation was down 76 percent.

It was a similar situation for Betz. His base salary increased 6 percent but incentive plan compensation was down 59 percent.

Board members well compensated

Overall, board members of the region’s public companies saw above-average increases in compensation. An Equilar analysis of non-employee director compensation at Fortune 500 companies found that the median value of total board-level compensation for increased by 7.2 percent from 2006 to 2007.

With only a few exceptions, the region’s board members saw increases in compensation ranging from 18 percent to 130 percent. The highest paid board member was former Woodward CEO John Halbrook, who received $734,057 for the fiscal year ended Sept. 30. However, $220,065 of that was payment under a long-term incentive plan put into place while he still served as CEO.

Another former CEO, Advanced Energy’s Doug Schatz, was the next highest paid board member with $265,644 in compensation for 2007. More than half his compensation consisted of option awards.

But no matter how it’s examined, it pays to be the CEO, or former CEO.

The compensation of Northern Colorado’s highest paid public CEO is $1 million more than the next closest competitor but still only a quarter of the median pay for S&P 500 CEOs.

Tom Gendron, CEO of Woodward Governor Co., was the region’s highest paid public company CEO in 2007. His compensation package – consisting of salary, incentive pay, options and miscellaneous items – was worth $2.4 million last year.

A large element of the compensation package, $703,409 to be exact, was in option awards. The amount is calculated for financial reporting purposes and does not necessarily reflect an amount the executive takes…

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