Compensation averaged $4.2 million in 2006
Pay climbs for auto execs
May 6, 2007
Executives at the top U.S.-based auto companies received compensation packages worth an average of $4.2 million in 2006, a year in which two-thirds of their companies failed to post profits, according to a Free Press analysis.
Rules for reporting executive compensation changed for this year's filings, but a comparison of similar categories showed that total compensation for these executives rose 22% from 2005 when the average compensation was $3.5 millionFord Motor Co. chief executive Alan Mulally ranked first in the analysis with a total compensation package of $39.1 million, which included an $18.5-million bonus for leaving the Boeing Co. to take the top job at the Dearborn-based automaker. Ford executives accounted for six of the top 15 spots in the rankings, which looked at 80 executives for 14 publicly traded companies.The compensation packages were awarded during a year when the domestic auto industry experienced widespread layoffs and plant closures. Financially strained companies and industries often have to pay more to attract talented executives to what could be a risky, high-pressure career move, experts say.
The pay raises, though, come as Ford, General Motors Corp. and the Chrysler Group prepare for contract talks with the UAW. Many outside analysts have predicted the companies, which are all losing money in North America, will ask for wage and benefit concessions from UAW members.
Even before the talks have formally started, executive pay has created a rift with workers, said Gerald Fischer, a 67-year-old Garden City resident who retired from Ford last year as part of the company's attrition program.
"It frustrates every average working man," Fischer said. "Every time we see it we get upset. ... They're still being compensated and we're still being asked to give back."
Ford said it provided the compensation packages because they were critical to recruit and retain key executives. Like at most companies, Ford's board of directors determined executive pay based on an analysis of executive pay at other global, manufacturing firms, according to its SEC filing.
"We pay competitive wages to attract and keep the best and brightest talent available," said Ford spokesman Tom Hoyt.
But the UAW says executive pay in the auto industry should be scrutinized, especially following agreements by Ford and GM union members to shoulder more of their health care costs to help the companies save money. More than 70,000 hourly workers also agreed to buyouts or early retirement packages.
"UAW members have made significant sacrifices to help auto industry employers get back on track and remain competitive," UAW President Ron Gettelfinger told the Free Press in a statement. "During a period of plant closings, employment reductions, and other painful changes for workers and communities, it's fair to ask whether executives are truly adding value in proportion to any compensation increases they have received."
Gettelfinger made $208,000 in salary, benefits and expenses in 2005, according to the most recent publicly available IRS filing for the UAW. His compensation would have ranked at or near the bottom of the corporate executive list in either year.
The Free Press analysis looked at reports filed by General Motors and Ford as well as 12 suppliers with publicly traded stock. It included salary, bonus, incentives, the fair market value of stock and options granted in the year and other compensation, such as use of corporate aircraft and company vehicles. The value of stock and option grants is not guaranteed and could be higher or lower when the executive cashes them in.
Executive pay in the auto industry was in line with pay at other public companies, according to data compiled by Equilar Inc., a California-based firm that specializes in executive compensation analysis. Looking at just the CEOs, usually the highest-paid executives, Equilar found a median CEO compensation for the auto industry of $7.1 million in 2006, compared to a median CEO pay of $8.5 million for public companies in the Standard & Poor's 500 index.
The Free Press analysis looked at CEOs as well as other executives, such as chief financial officers and vice presidents, who are listed in the SEC filings.
Johnson Controls Inc. chief executive John Barth ranked second overall behind Mulally with a total compensation of $30.8 million in 2006. James Padilla, who retired last year as Ford president and chief operating officer, was third at $15.5 million.
The top five also included Johnson Controls executive vice president Stephen Roell at $14.5 million and Eaton Corp. chief executive Alexander Cutler at $12.1 million.
Milwaukee-based Johnson Controls and Cleveland-based Eaton, which both have operating units outside of the automotive industry, posted double-digit gains in profits and revenues in 2006.
Ford lost a company record $12.6 billion in 2006, compared to a $1.4-billion profit in 2005. Every returning executive listed in Ford's filing, except for Bill Ford, received more in total compensation in 2006 than in 2005.
Compensation experts caution against blanket statements about executive pay and its relation to profits. Companies can lose money and still be justified in pay increases if they hit targets moving the companies toward financial stability, they say.
"If you're in a tough world and you didn't go bankrupt, maybe that's a good thing," said Mark Watson, managing director of corporate governance for New York-based Moody's Investors Service. "You look at the airline industry and the auto industry. They must be struggling to keep talent. They're under an enormous amount of stress and strain."
In particular, Mulally is a special case because he was lured away from another company, said Peter Morici, a University of Maryland business professor who follows the auto industry. But few U.S. auto executives have shown that they deserve their pay packages, he said.
GM chief executive Rick Wagoner received $9.6 million in total compensation in 2006, a 75% pay raise from 2005. GM lost $2 billion in 2006, compared to a $10.4 billion loss in 2005.
DaimlerChrysler AG chairman Dieter Zetsche received $10.3 million and Chrysler Group CEO Tom LaSorda $5.2 million, counting phantom shares granted by the company.
DaimlerChrysler was not included in the Free Press analysis because it was not required by German reporting rules to provide comparable data on 2005 compensation. The overall company made $5 billion last year but the Chrysler Group lost $680 million, after restatements for new accounting rules."The reality is there is no accountability on CEO pay in the automobile industry," Morici said. "These companies are going down the drain and the boards are silent. ... In terms of the CEOs, they really haven't delivered."
These compensation packages will make it more difficult for the companies to win concessions from the UAW when contract talks start in July, Morici said.
"The senior executives don't want to come down hard on the autoworkers because if they did, they would have to come down hard on themselves," Morici said.
In the past year, executive compensation in the auto industry depended heavily on stock and option awards, which experts point to as a positive trend. Stock and option awards were, by far, the biggest component, providing an average of $2.2 million, or about half of overall compensation.
Ford's Mulally received the most in stock and options with grants valued at $19.6 million. Also in stock and option grants, Johnson Controls' Barth was provided $17 million, Ford's Padilla $14 million and GM's Wagoner $7.5 million.
A heavy weighting toward stock and options can be a good way to compensate executives, said Charles Elson, chairman of the University of Delaware's Weinberg Center for Corporate Governance. In order to make money on those investments, the company's stock needs to do well, which would also benefit shareholders.
"It aligns their interests with the company's interests," Elson said.
Whether it's stock and options or base salary, though, the increases to this year's compensation packages are bad, said Fischer, the recent Ford retiree.
"We don't begrudge them their money because of their education and background," Fischer said. "Don't get me wrong. But why do we have to give up a buck an hour and they get a $2-million raise?"
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| Top 20 in U.S. auto industry | |||
| The Free Press analyzed SEC filings for two U.S. automakers and 12 leading suppliers for 2006. The average total compensation for these executives was $4.2 million. See the full list and its components at www.freep.com. | |||
| Name | Company | Title | Pay |
| Alan Mulally | Ford Motor Co. | President and CEO | $39,128,100 |
| John M. Barth | Johnson Controls | Chairman and CEO | $30,756,614 |
| James Padilla | Ford Motor Co. | Former president and COO | $15,489,659 |
| Stephen A. Roell | Johnson Controls | Vice chairman and exec. VP | $14,514,725 |
| A. M. Cutler | Eaton Corp. | Chairman, chief executive officer and president | $12,096,994 |
| Keith E. Wandell | Johnson Controls | President and COO | $11,461,499 |
| Mark Fields | Ford Motor Co. | Exec. VP and president of the Americas | $10,858,886 |
| John C. Plant | TRW Automotive | President and CEO | $10,376,215 |
| Rick Wagoner | General Motors | Chairman & CEO | $ 9,573,556 |
| Don Leclair | Ford Motor Co. | Exec. VP and CFO | $ 7,992,593 |
| Richard E. Dauch | American Axle | Cofounder, chairman & CEO | $ 7,541,367 |
| Lewis W.K. Booth | Ford Motor Co. | Exec. VP of Ford of Europe and Premier Auto Group | $ 7,425,983 |
| R. Bruce McDonald | Johnson Controls | Exec. VP and CFO | $ 6,745,781 |
| Mark A. Schulz | Ford Motor Co. | Exec. VP and president of International Operations | $ 6,590,366 |
| William Clay Ford Jr. | Ford Motor Co. | Exec. chairman and former CEO | $ 5,343,841 |
| Michael F. Johnston | Visteon Corp. | Chairman and CEO | $ 5,271,987 |
| Timothy M. Manganello | BorgWarner Inc. | Chairman and CEO | $ 5,153,799 |
| José Maria Alapont | Federal-Mogul | Chairman, president and CEO | $ 5,101,314 |
| Bob Lutz | General Motors | Vice chairman, Global Product Development | $ 5,086,120 |
| Steven Lunn | TRW Automotive | Exec. VP and COO | $ 5,066,441 |
Executive pay methodology
The Free Press analysis compared executive compensation for two U.S.-based automakers and 12 suppliers using the following components in their SEC filings: salary, bonus, incentives, fair market value of stock and options granted in the year and other compensation, such as personal use of company aircraft and car allowances.
These figures may differ from what is reported by the company in its summary compensation table, which includes accounting expenses taken by the company for stock and options and pension liabilities. The Free Press analysis, following recommendations from outside experts, makes adjustments to these figures to provide a more accurate assessment of what an executive was given in the year as a compensation package. It also provides a better comparison to compensation packages reported for 2005 and previous years.
| Elsewhere in Michigan | ||
| A sampling of what CEOs at non-auto companies in Michigan made in 2006 | ||
| Name | Company | Compensation |
| Richard J. Dugas Jr. | Pulte Homes Inc. | $12,433,862 |
| Andrew N. Liveris | Dow Chemical Co. | $11,921,267 |
| Jeff M. Fettig | Whirlpool Corp. | $ 9,536,602 |
| Richard A. Manoogian | Masco Corp. | $ 8,690,734 |
| James M. Jenness | Kellogg Co. | $ 7,742,436 |
| Anthony F. Earley Jr. | DTE Energy Co. | $ 7,007,225 |
| How they compare | ||
| Chief executives in the auto industry are paid about the same as other CEOs -- and less than some. | ||
| Industry | 2006 Median CEO Pay | Change From 2005 |
| All S&P500 | $ 8,512,509 | 6.0% |
| Auto | $ 7,130,327 | 1.1% |
| Defense | $ 15,507,932 | 13.8% |
| Finance | $ 37,447,330 | 61.4% |
| Oil | $ 13,605,964 | 4.4% |
| Source: Equilar Inc. | ||
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