Pay At Local Public Cos. Falters In 2007 | EMC's Tucci tops the list two years in a row
It seems the economy, particularly the suffering stock market, is taking its toll on the highest-paid executives in Central Massachusetts.
In 2006, the top five highest-paid CEOs in the region made a combined $72.3 million, according to the research into SEC filings by the Worcester Business Journal. In 2007, the top five CEOs made a combined $50.2 million. That 30.5 percent decrease takes the average compensation for the top five from $14.5 million down to $10 million in one year.
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The same CEO, EMC Corp.’s Joseph Tucci, topped the list both years. In 2006, Tucci’s total compensation was $20.2 million. In 2007, it was $17.3 million.
Aside from Tucci retaining the title of highest-paid CEO in Central Massachusetts, the two lists show a bit of a shake-up among the region’s corporate elite.
James Tobin, CEO of troubled medical device company Boston Scientific in Natick, may be a good example of how area companies are trying to do more with less. Tobin took the second spot on the list after making $8.7 million in 2007. In 2006, Tobin was the sixth-highest paid CEO in the region and made $8.4 million.
The way was cleared for Tobin by the exit from the Top 5 of two other executives, Ronald N. Tutor, chairman and CEO of Framingham’s Perini Corp. and Arthur J. Remillard Jr., former chairman, president and CEO of Webster-based insurer the Commerce Group.
In 2006, Tutor made $16.8 million all in incentives, stock and “other compensation.” In 2007, Tutor was paid using the same wage-less system and made slightly less than $6 million. While the “other compensation” in Tutor’s pay increased from $879,200 in 2006 to $976,900 in 2007, the other elements of his pay slumped.
In 2006, Tutor made $1.7 million in non-equity incentive plan compensation. In 2007, that number dropped to $976,900. Similarly, Tutor’s stock awards fell from $14.2 million in 2006 to slightly less than $4 million in 2007.
Remillard left Commerce in July of 2006. That year, he made $13.2 million. He was replaced by Gerald Fels, who in 2007 made $4.1 million.
Like Tucci, Ronald L. Sargent, chairman and CEO of Staples Inc. of Framingham, retained his position as the third-highest paid CEO in the region. However, Sargent’s total compensation fell from $13.7 million in 2006 to $8.3 million in 2007.
Sargent’s 2007 base salary of $1.1 million didn’t change much from the prior year. He didn’t receive a bonus in either year. The big difference for Sargent was in the pay he received from the company’s non-equity incentive plan, option awards and stock awards, all of which saw significant decreases.
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In 2006, Sargent made $1.5 million in non-equity incentive plan compensation. In 2007, that number decreased to $621,006. In 2006, he made $3.3 million in option awards. Last year, he made $356,908. In 2006, he made $7.4 million in stock awards. In 2007: $5.7 million.
Martha Heller, a managing partner at executive search firm ZRG in Westborough, said companies tie compensation closely to the performance of company stock to ensure that an executive’s success depends on the success of the company as a whole. And executives love the challenge, even though it could mean making a few million less year-to-year.
But a number of factors, from the public perception of corporate America to the downturn in the stock market, have brought executive compensation down, she said.
“There’s definitely been a backlash against exorbitant executive pay,” Heller said. “Company after company, you see these CEOs who aren’t behaving in a responsible way toward their company or their shareholders,” she said. Today’s smaller compensation packages may be a de-facto “cap, or even a reversal in executive pay.”
For many top-level executives, as it is for the top five in the WBJ’s lists, pay is closely linked, even dictated, by the success or failure of the company’s stock.
Heller said closely tying, or even basing, compensation on the success of the company’s stock is a good way for companies to attract motivated executives. High-level executives, she said, are thrill seekers.
“It’s exciting to have a lot of your compensation tied up in the equity of the company or the stock of the company. (Those executives) truly believe the company is going to come out on top. When I do a search, I know I have a great candidate when he or she is more interested in the equity side of the package. It means they believe in the company’s future and in their own power.”
The thrill of being a high-power executive, the visibility the position provides and the lifestyle it affords may be more important to those executives than the money itself, Heller said. Ambitious executives, even before they take a job, are thinking, “Where can I go from here?” Heller said.
“They have lifestyles they’re accustomed to and college tuition to pay,” Heller said. “But if the challenge is not there and the visibility is not there, the greatest compensation package in the world isn’t going to attract the executive.”
EMC’s Relativists
Last November, Tucci agreed to remain EMC CEO through at least 2010, according the latest company proxy statement filed with the U.S. Securities and Exchange Commission.
The proxy statement also sets out the company’s rationale for basing executive compensation on company equity.
“In 2007, a significant portion of our executive officers’ compensation was in the form of equity awards which will vest only if EMC achieves strong revenue and earnings-per-share growth in 2008 and will be forfeited if these growth targets are not achieved,” the proxy said. “These awards clearly demonstrate how aggressively EMC pursues superior performance and the at-risk nature of executive compensation at EMC.”
Still, Tucci’s money isn’t entirely at-risk. He gets the whole lot of it even if he leaves the company before the end of his employment agreement. If he leaves the company involuntarily, Tucci gets his entire base salary and his entire target bonus. He’ll also continue to receive benefits, and his equity awards will continue to vest “as if his employment had not terminated.”
If Tucci voluntarily terminates his employment, he will be entitled to a prorated annual target bonus for the year of termination, according to the proxy. The EMC board of directors and its compensation committee “determined that the provision of one year of target cash compensation and the continued vesting of equity awards provide an appropriate level of severance for Mr. Tucci given his service to EMC.”
He and David Goulden, the company’s executive vice president and CFO, are the only two EMC executives with severance packages.
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