US-based corporate governance group, Corporate Library, last week released its annual study of CEO remuneration. The report showed further proof that while shareholders may have suffered from the global financial crisis, executives haven’t had been doing it too tough, with a private equity boss and a host of energy CEOs leading the charge.
The highest paid executive in 2008 out of 3300 companies analysed by Corporate Library was Blackstone founder and CEO, Stephen Schwarzman. However, Schwarzman’s pay of US$702 million (yes, that’s right, seven-hundred-million) wasn’t really remuneration, rather, it represented payment for Schwarzman’s holding in company which is being paid to him in four instalments, rather than as a lump sum at the time of Blackstone’s initial public offering. (Blackstone’s Annual Report notes that neither Schwarzman, nor lieutenant, Pete Peterson, received equity awards or cash bonuses last year).
Schwarzman is perhaps most famous not for his outstanding skill as a private equity fund manager, but rather, as the man who threw himself a 60th birthday party in 2007 which cost more than US$3 million. That party, which became synonymous with private equity’s self-indulgence, led to Schwarzman being dubbed the designated villain of an era on Wall Street by James Stewart.
The Corporate Library noted that Schwarzman’s remuneration (which is cash terms, was only US$350,000) was determined by a compensation committee consisting of Schwarzman himself. Of course, the notion of a publicly-owned private equity firm itself is somewhat of an anachronism, PE firms (often correctly) point out that privately-held businesses are more efficient and profitable than publicly owned companies. It seems however that Blackstone are believers in doing as they say, not as they do. The company’s share price has certainly not performed well since listing at US$35 in July 2007, currently sitting on $14.05 per share — a fall of almost 60%.
Schwarzman was far from the only grotesquely paid executive last year. Oracle boss and avid sailor, Larry Ellison, cashed in options worth more than US$540 million according to Corporate Library (although other metrics placed Ellison’s remuneration at a more paltry US$84 million). Either way, the four-times married Ellison arguably didn’t really need the money; his net worth believed to be approximately US$25 billion, making him the third richest American.
Other big money recipients were Ray Irani of Occidental Petroleum and John Watford of Ultra Petroleum. No doubt it was their sublime managerial skills and not an ever-increasing oil price which created wealth for shareholders, vindicating their US$100 million-plus remuneration. 2008 wasn’t Irani’s first brush with excessive pay — in 2006 the Lebanese-born executive collected US$460 million. Other energy bosses in the top ten included Aubrey McClendon of Chesapeake Energy, Bob Simpson of XTO Energy and Mark Papa of EOG Resources.
McClendon’s remuneration of almost US$80 million drew particular criticism, with Business Week noting that he received the highest bonus of any CEO last year, despite Chesapeake’s share price dropping by almost 70 percent from its June 2008 peak. McClendon last year sold almost his entire holding in the company to satisfy margin calls.
While unlikely to make much difference to the quantum of CEO remuneration, the United States have followed the lead of Australia and the United Kingdom and last month passed legislation which provides shareholders with a non-binding vote on director remuneration. Dubbed, “Say-On-Pay”, the bill seeks to provide US shareholders with non-binding advisory votes on executive remuneration and golden-parachute packages. The Bill will also require remuneration committee members satisfy guidelines ensuring their independence from the executive team they are supposed to be overseeing.
US shareholders shouldn’t be too hopeful though given that this was the country whose largest financial institutions desperately accepted US$175 billion in taxpayer funded bailouts last year, only to pay bonuses to staff of US$32 billion a couple of months later.