Pay Cuts These CEO Pay Grades Are an A+

By Staff Report

Mar. 25, 2009

The rarest sight in corporate America might be a chief executive at a profitable company who, in recognition of tough times, takes a pay cut.

Amid extraordinary public outrage about executive bonuses at American International Group Inc., New York, and other bailed-out financial companies, a handful of CEOs accepted reduced compensation last year in spite of strong corporate performance.

In most cases, they work at firms that were until recently private partnerships or that still have the founder’s relatives on the board. Such ties deter CEOs from indulging their greedier instincts.

“When it comes to pay, there are leaders in the business world with a sense of ethics and doing the right thing,” said Vineeta Anand, chief research analyst at the AFL-CIO’s office of investment in Washington. “But it’s a pretty small group.”

Often those taking symbolic or drastically reduced pay at troubled companies still have lucrative bonus and stock packages.

Accepting a salary of $1 for 2009, Vikram Pandit of Citigroup Inc., New York, was awarded $35 million in stock last year as a “sign-on” bonus for taking the CEO role. He joined the company in 2007 after it acquired his hedge fund for $800 million.

You’ll see people sometimes cutting their salaries in tough times, but that’s the extent of it,” said Steven Hall of compensation consultancy Steven Hall & Partners, New York. “Usually they make up the pay in other areas.”

Taking a knife to cash bonuses
The thin ranks of heroic CEOs taking pay cuts shrink further when such goodies as unvested equity grants are considered. Commonplace and often substantial, these payments are routinely excluded from total executive compensation in companies’ annual regulatory filings.

One example of CEOs taking a hit when they could have legitimately argued for better pay can be found at Greenhill & Co., New York, a boutique investment bank that was a closely held partnership until 2004.

Greenhill’s share price actually rose 8 percent last year. Earnings fell by more than half, yet the company remained solidly profitable as many Wall Street competitors turned to the federal government for a rescue, were acquired or collapsed.

Rather than demand raises for dramatically outperforming their peers, Greenhill co-CEOs Scott Bok and Simon Borrows each agreed to have their total compensation slashed to about $5.5 million from $22 million and $24 million, respectively, in 2007.

A severe drop in Greenhill’s core merger advisory business drove lower cash bonuses for the two CEOs: Bok’s fell 89 percent and Borrows’ 95 percent. To help soften the blow, Greenhill granted Bok $1.9 million worth of shares and Borrows $3.8 million worth. Greenhill didn’t return a call seeking comment.

At New York-based financial advisory firm Duff & Phelps Corp., CEO Noah Gottdiener saw his total compensation slip 4 percent last year, to $4.6 million.

In 2008, its first full year as a publicly traded company, Duff & Phelps turned profitable, with $38 million of operating income; revenue grew 9 percent, to $392 million. Its share price fell just 3 percent, vastly better than those for most financial institutions.

Gottdiener’s total compensation dropped mainly because of a 26 percent plunge in his cash bonus, to $883,000. In a regulatory filing, Duff & Phelps said it cut its executive bonus pool by $4.7 million “due to the current economic environment,” even though its financial performance exceeded targets set by the board.

But Duff & Phelps seemed eager to mitigate the current environment’s effects on Gottdiener by granting him $1.3 million worth of shares, which won’t count as pay until they vest. Duff & Phelps declined to comment.

Net income up 27 percent; pay down 7 percent
Similarly, medical device maker Becton Dickinson & Co. reduced total compensation for CEO Edward Ludwig last year by 7 percent, to $7.5 million, while net income jumped 27 percent, to $1.2 billion, and revenue increased 13 percent, to $7.2 billion.

Much of the decline in Ludwig’s compensation was related to the New Jersey-based company’s assuming a lower rate of return on his pension assets.

Like many other public companies, Becton granted its CEO a healthy amount of stock—in his case, $5 million worth last year—to offset a decline in pay. The grant isn’t officially considered part of his total compensation because it hasn’t vested.

Still, there are signs that Becton board members—including Henry Becton Jr., the son of a former CEO and grandson of a founder—are toughening their pay standards.

Citing disappointing stock performance at the start of 2009, the board said it was granting fewer shares to Ludwig and other top officers. Becton Dickinson declined to comment.

Filed by Aaron Elstein of Crain’s New York Business, a sister publication of Workforce Management. To comment, e-mail

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