1. Size matters: CEO paydays are often linked to a company’s size, rather than its performance

    Size matters: CEO paydays are often linked to a company’s size, rather than its performance

    Size matters: CEO paydays are often linked to a company’s size, rather than its performance

     

    It pays well to be an executive at a company that’s hauling in revenue and watching its stock skyrocket. But many times, it pays just as much to sit atop a company that’s big, period, even if it’s not performing at its peak. The Business Journal looked at compensation data for executives at nearly 200 publicly traded Massachusetts-based companies and found that the best-paid CEOs were not always the ones at the best-performing companies.

    One reason for the disparity: Different industries pay executives, well, differently.

    The Business Journal’s analysis sorted local CEOs into quartiles based on their company performances in 2015 and, in a handful of cases, fiscal 2016. The company rankings were based on a weighted measure that accounted for year-over-year changes in stock price and revenue, with a particular emphasis on share value as the best measure of an executive’s performance relative to their most important constituents: shareholders.

    As such, companies in the top quartile experienced the strongest combination of revenue and stock-price gains, with the second quartile reporting the next-best returns, and so on.
     

    The results indicate that CEO pay can have as much to do with external factors — say, a given industry or a company’s stage of growth — as it does with his or her ability to spur top line and stock price growth. For example, executives in the second quartile earned a median of $4.8 million last year, 16 percent higher than those in the first quartile, who earned a median of $4.1 million.

    The top earners in the first quartile include several executives at relatively young firms still striving to reach the upper echelon of their respective industries. Top earners included Laurence James Neil Cooper of Ziopharm Oncology ($12.5 million in total 2015 compensation), whose revenue more than tripled in 2015, and John Knopf of Acceleron Pharma ($7.4 million).

    The top earners in the second quartile, meanwhile, include the top two executives of the largest publicly traded company in Massachusetts as measured by revenue — Framingham-based retailer The TJX Cos. Inc. Combined, they earned nearly $38 million. Also falling within the second quartile are leaders of Thermo Fisher ScientificRaytheonAmerican Tower,Eversource Energy and Analog Devices, all among the 20-largest public companies based in Massachusetts.

    Compensation experts say such discrepancies highlight that, while corporate boards are increasingly tying compensation to performance, size still holds sway when it comes to executive payouts. “The reality is that once you’re talking about a larger company ... they are going to be paid more,” said Mark Rogers, founder and CEO of Boston-based board recruitment firm BoardProspects.

    With median pay of $3.8 million, executives in the third quartile earned less than the first two groupings and more than the fourth, which pulled in a median of $3.6 million. Board members, especially those whose companies aren’t performing well, are scrutinizing executive pay more than they did a few years ago because they are more fearful of activist investors, according to Rogers.

    The top earner in all of Massachusetts, on paper at least, was Endurance International Group CEO Hari Ravichandran. The Burlington-based tech company’s proxy statement put Ravichandran’s pay at $36 million, even though the web hosting company’s stock fell by more than 40 percent in 2015.

    However, Ravichandran’s payout is not as large as it may seem at first blush: In October, the executive had his annual salary slashed from $750,000 to $200,000, in order to more closely tie his pay to performance, and he received no cash bonus. As such, nearly every dollar of his $36 million payday is through an equity award that will pay out over a three-year span, depending on Endurance’s performance over that time.

    Three other executives in the bottom quartile earned at least $10 million. In each case, their companies reported one-year declines in revenue and share value.

    Some boards, while acknowledging an off year, will still seek to retain a well-regarded executive by padding his or her wallet based on past performance and industry knowledge.

    “One factor is this individual is highly sought after, and you’re afraid losing this executive could cause even more of a problem,” Rogers said.

     

    http://www.bizjournals.com/boston/print-edition/2016/06/10/size-matters-ceo-paydays-are-often-linked-to-a.html

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