Bonuses shrink for public CEOs

In years past it seemed that executive pay was on a ceaseless upward trajectory, but the past year wasn’t like any other.

Public company executives face scrutiny not only from a board of directors but also from shareholders. Nationally, a number of executives are facing pay cuts as their firms see negative earnings reports, layoffs and pay reductions at the lower levels of employment.

Companies operating on a typical fiscal year most likely set the pay levels for executives long before the economy took a nosedive, though some firms have already taken steps to rein in pay.

Of Northern Colorado’s local publicly traded companies, Advanced Energy Industries Inc. has taken the most drastic steps to keep costs in line with rapidly declining sales. The company has cut hundreds from its workforce and instituted weeklong furloughs amounting to an entire quarter during the year.

Along with these cuts, executives took a 15 percent reduction in pay. For CEO Hans Betz, that amounts to more than $80,000 of his $561,804 salary (as reported in the company’s most recent proxy filing with the Securities and Exchange Commission). Betz’ full salary for 2008, including stock options and awards, was valued at $1.5 million, and he received no bonus. In 2007, Betz received a bonus of $239,303 and $588,519 in 2006.

According to CFO Larry Firestone, the pay cuts are temporary. However, it is at the discretion of the company’s compensation committee to decide when to reinstate the entire salary amount. He added that there will be no bonuses in 2009.

Performance-based wiggle room

While base pay is often calculated by looking at what peer companies are paying, it’s bonuses, stocks and options where there is some performance-based wiggle room. Loveland’s Heska Corp. took measures late last year to shore up a dwindling revenue stream, including a round of layoffs. The company froze salaries for executives before the rest of the employees, but there have not been any pay cuts for executives, even though the possibility wasn’t completely off the table.

“We’ve had discussions on it,´ said Jason Napolitano, CFO at Heska.

For Heska’s 2009 fiscal year, CEO Robert Grieve received a base salary of $416,666 and no bonus. His total compensation was $489,639 including the value of his option awards. There were no executive bonuses given in 2008, Napolitano points out, and none anticipated in 2009. In order to receive bonuses, the company must meet certain financial targets.

“We set the payout at such a level that we didn’t expect to make it in 2009,” Napolitano explained.

Fort Collins-based Woodward Governor Co. has also suspended annual bonuses for the year as part of its ongoing efforts to cut costs. In December, Woodward implemented a hiring freeze and a reduction in capital expenditures that included putting a hold on a facility expansion in Rockford, Ill. The company has not instituted any furloughs or across-the-board pay cuts, according to spokeswoman Rosemarie Briani Burden.

For Woodward’s 2008 fiscal year, which ended on Sept. 30, CEO Tom Gendron collected a compensation package worth $2.88 million – a base salary of $647,115 and cash bonuses totaling $1.39 million.

Woodward’s executive bonus program is two-tiered with a “management incentive plan” and a “long-term incentive plan.” The MIP portion of the bonus plan is the one suspended for this fiscal year; it accounted for $893,343 of Gendron’s 2008 compensation.

Briani Burden added that the compensation committee meets formally three times per year to discuss all elements of executive pay.

Less pain, less change

Not every public company has been suffering through this economy, however.

“We’ve been growing our revenue despite the recession,´ said Don French, CFO of Frederick-based UQM Technologies Inc.

UQM develops and manufactures electric motors and controllers. The firm hasn’t taken any cost cutting measures because it is continuing to perform at the levels it has planned for, French explained.

For UQM’s 2009 fiscal year, which ended March 31, CEO Bill Rankin had a base salary of $322,676, and a cash bonus of $50,000. His total compensation package was worth $765,021 largely due to stock and option award values, tying much of his pay to performance.

The stock price as of March 31 was little changed from the previous year – from $1.69 in 2008 to $1.64 in 2009. As of the last week of June, the company’s stock was trading around $2.55.

French said that the company’s compensation committee bases much of its decision on how the company is performing against internal markers. He doubts there will be much change to the annual compensation calculations due to the overall economic health.

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