Featured: Alan Mulally, CEO, Ford Motor
Originally published: April 6, 2012
Americans on tight budgets held off buying new wheels once again last year, driving the average age of cars and light trucks on the road to 10.8 years, a record high.
But while customers pinched pennies, one of the major car companies showed little restraint when it came to CEO pay.
Ford Motor ( F ) chief Alan Mulally got a monster 2011 pay package worth $29.5 million. That's not a record, but it's pretty high by several measures:
- His pay was three times the $9.6 million average 2011 pay for CEOs of companies on the Standard & Poor's 500 Index ( $INX ), as tallied so far by USA Today and GMI, an independent corporate governance researcher.
- His pay was so high that about $5.17 of the price of each car or light truck sold by Ford last year went to cover Mulally's pay, on average. That figure would have averaged $1.68 per vehicle had Mulally gotten pay in line with the average at S&P 500 companies.
- Mulally got that monster pay even though Ford stock was down a whopping 36.8% for the year, compared with a flat performance for the S&P 500 -- which had to leave Ford shareholders wondering what they got for all that pay.
For coupling such vast pay with such poor stock performance, I'm making Mulally my latest "One-Percenter of the Week."
"It's getting harder and harder to justify the big salary and big stock options he gets when the stock isn't performing," said Gary Bradshaw of Hodges Capital Management, which owns Ford stock, in published reports.
Mulally's 2011 monster pay package also seems remarkable in light of the mega-grant of stock options he got in March 2009, when Ford stock was trading below $2 a share. With Ford stock now trading around $12.50, that mega-grant of 5 million options -- much larger than normal -- is currently worth more than $52 million. (See " 6 CEOs who won the options lottery " for more.)
That takes his total 2009 pay up to $65 million, when you include salary, stock grants and perks. Mulally also has $58 million worth of restricted stock from previous grants due to vest over the next four years, points out Paul Hodgson, an executive pay expert at GMI. Given the huge value of all these grants, "it seems to me there wasn't any point of awarding him any more," says Hodgson.
Nevertheless, fresh stock and options grants made up the lion's share of Mulally's 2011 pay. Last year, he received $21.4 million in stock and options awards. He also got a $2 million in salary, $1.82 million in discretionary bonus, a $3.6 million incentive bonus and $612,500 in perks, for a total of $29.5 million.
Those perks included $178,571 for personal use of the company jet and $89,277 for housing and living expenses. And despite getting nearly $30 million in pay, Mulally also got Ford to pay $59,907 for his security costs. That figure alone was more than $10,000 higher than the earnings for the typical U.S. household for an entire year, which stood at $49,445 in 2010. In published reports, United Auto Workers vice president Jimmy Settles called Mulally's 2011 pay "outrageous compared to the earnings of workers," and given the high level of unemployment.
Monster pay packages like the one Mulally received help explain the growing concentration of wealth at the top in our country, and the hollowing-out of the middle class. Many economists say these two trends are unhealthy for the economy.
Ford responds that Mulally gets a lot of stock and options grants to align his interests with those of shareholders, and that the company's stock is up 43% over the past five years, compared with a slight decline for the S&P 500. Ford says the stock's weakness last year was due to factors like concerns about the economy and the impacts of the Japanese tsunami and the European debt crisis.
The company says it produced its highest reported net income in more than 10 years last year, at $7.8 billion excluding one-time items. It says operating cash flow increased $1.2 million to $5.6 billion, and net cash increased by $8.4 billion to $9.8 billion. In addition, the company points out that it increased U.S. market share for a third consecutive year and initiated a dividend in early 2012.
And in fairness to Mulally, after he took over as CEO in 2006, Ford borrowed a lot of money, which helped it stay out of bankruptcy in 2009 -- unlike General Motors ( GM ) and Chrysler .
On the other hand, Ford's U.S. quality ratings slipped last year because of problems with touch-screen dashboard controls and shifting problems in some automatic transmissions. And, of course, Ford shareholders also had a tough year financially. Mulally, who works for them, did not.
