After taking a hit last year, the pay of top executives in the Buffalo Niagara region bounced back.
The median pay for the 56 highest-paid executives at the publicly traded companies in the Buffalo Niagara region rose by 5.4 percent last year.
Behind the increase were bigger bonus payments and more generous grants of shares of their companies’ stock, which offset sluggish salaries and a big cutback in the portion of executive pay that comes from stock options, which give top executives the chance to buy their company’s stock at a set price sometime in the future.
Even with the modest growth in their paychecks, local CEOs still are doing quite well for themselves, with a median pay package of $1.66 million, or almost $100,000 more than the median pay of those same executives in 2012, according to a survey by The Buffalo News.
It also was the third straight year that the survey found the median total compensation for high-ranking local executives topped the $1 million mark.
While that increase isn’t eye-popping, the pay for high-ranking executives is growing about 10 times faster than it is for the average worker in Erie County. Companies continue to hold the line on employee pay as the economy continues to grow slowly.
With unemployment at 5.8 percent in April, and job growth locally less than half the national average, there still is plenty of competition for every open position, leaving workers with little leverage in negotiating wages.
The average weekly wage of workers in Erie County rose by just 0.5 percent last year to $857 a week – not enough to keep pace with inflation, according to the U.S. Bureau of Labor Statistics.
Pay gap widens
The gap between what top executives earn and what average workers are paid continues to widen. The survey found that the median pay of the local executives last year was more than 38 times higher than the $43,010 that the average worker in the Buffalo Niagara region earned.
But the region’s cadre of highest-paid executives is growing. A total of 10 executives earned more than $3 million last year, led by David F. Smith, National Fuel’s now-retired executive chairman, whose total pay was just shy of $7.6 million.
A third of the 56 executives who were part of the survey – 19 in all – earned more than $2 million in total compensation. And for the third straight year, more than half of the local executives included in the survey – 31 in all – earned more than $1 million.
Only one of the highest-paid executives in The Buffalo News compensation survey is a woman, Anna Marie Cellino, the president of National Fuel’s utility business, whose total pay last year was just under $3 million.
Pay is lower here
Still, high-ranking executives in the Buffalo Niagara region don’t make nearly as much as their counterparts at much bigger companies across the country. The head of a typical large public company made $10.5 million last year, an 8.8 percent increase from a year earlier that was propelled by a rising stock market, according to an analysis by the Associated Press.
Robert G. Wilmers’ $3.6 million pay package ranks fifth among local executives as chairman of M&T Bank – one of the nation’s 20 biggest financial institutions – but his total pay is less than a third of the average compensation for executives at the nation’s biggest financial firms, according to the AP analysis.
National Fuel, for instance, included a separate comparison of Smith’s salary and incentive pay with 16 other CEOs in the energy industry. Smith’s direct compensation was about 10 percent below the median pay of CEOs at that group of similiarly sized companies.
“We believe the comparison to our peers in the energy industry is more appropriate than geography,” said Karen L. Merkel, a National Fuel spokeswoman.
Pay can vary
With companies structuring CEO pay plans in a way that tries to build a stronger link between compensation and the performance of the business, the earnings of top executives can vary considerably from year to year.
Moog Inc., for instance, did not pay its executives anything through its long-term incentive plan last year because the company’s earnings per share went down after taking a pair of write-downs at its long-struggling medical device unit and its industrial products business.
Because a big part of a high-ranking executive’s pay is linked to how the company performs financially or how well its stock does, often over a period of several years, the actual pay that an executive receives can be significantly different from what is reported in the proxy statement.
Some bonus payments, for instance, are tied to targeted elements of a company’s financial performance, from sales and profits to more complex elements such as profitability, working capital requirements and return on invested capital. Whether an executive receives the compensation often depends on the company meeting those targets over a period of three years.
Stock grants also are spread out over a period of several years, even though the value of the shares, as reported in the proxy, reflects the stock price at the time of the grant. By the time those shares vest and the executive actually takes ownership of them, often one to three years later, those shares could be worth more or less than they were at the time the grant was made.
Plenty of perks
Top executives also get perks – ranging from medical benefits and pensions to financial planning services and company cars – that are more lucrative than anything available to average workers.
Some top executives also get better health benefits than most workers. Computer Task Group, for instance, pays for disability insurance for all of its top executives, and also reimburses them for up to $10,000 of out-of-pocket medical and dental expenses they might incur. The company also will pay up to $2,000 for tax preparation services. Moog also gives its top executives supplemental health care coverage that pays for any medical costs that aren’t covered under their regular policies.
Those extra medical benefits can be extremely valuable. The company reimbursed Servotronics CEO Nicholas D. Trbovich $235,799 last year for health-related expenses.
Even death benefits are better. In addition to life insurance benefits, Moog would keep paying the salary of a deceased high-ranking executive to their spouse for a period of six months.
And some executives get rather unusual perks. A portion of Astronics Corp. CEO Peter J. Gundermann’s pay last year covered his personal use of the company’s plane, although the East Aurora aircraft lighting and electronics manufacturer didn’t say how much that was worth. The use of the plane was lumped in with Gundermann’s $54,400 of “other” compensation, which also included perks, such as the value of his personal use of a company car, contributions to a medical reimbursement plan and personal financial planning and tax preparation services.
M&T Bank pays for an apartment that its chairman, Robert G. Wilmers, uses when he is in Buffalo.
Some of the extra benefits can be fairly minor. M&T Bank, for instance, pays the parking expenses of its top executives.
High-ranking executives also tend to come out better than a typical worker when they leave their job.
Synacor Inc. CEO Ronald N. Frankel who said in March that he will step down as soon as the company hires a successor, will keep drawing his $350,000 annual salary for two years after he resigns. During that time, Frankel will be considered a “non-executive employee” who is helping the company with the leadership transition. If he takes another job within a year of his resignation, his Synacor salary will stop after the first year.
That provision was criticized last week as “an above-market exit package” by a pair of dissident Synacor investors who are trying to force a sale of the company. The investors, JEC Capital Partners and Ratio Capital Management, own a combined stake in Synacor of slightly less than 10 percent.
The value of an executive’s pension benefits also can cause big swings in overall pay packages. Those swings added $1.1 million to last year’s pay for National Fuel’s now-retired chairman, David Smith.
But it also can work the other way, mainly as changes in interest rates affect the present value of those benefits. Moog CEO John R. Scannell’s pension benefits lost $244,000 in value last year, but that decline wasn’t reflected in his reported compensation under the reporting rules set by the SEC.
Gibraltar Industries CEO Brian J. Lipke hasn’t received a salary increase since 2008, as the Hamburg construction products manufacturer was hit hard by the collapse of the housing market during the recession and has recovered slowly since. His overall compensation rose by just 1 percent.
Because Cleveland BioLabs’ stock plummeted to less than $1 in January after a key federal defense agency decided not to fund further studies of its anti-radiation sickness drug, the Buffalo drug development company’s compensation committee determined that the firm would not pay any cash bonuses or issue any stock options to its top executives this year under its bonus plan.
“I took a personal pay cut,” said Yakov Kogan, Cleveland BioLab’s chief executive officer.
The executives did receive stock options last year, based on the company’s performance during 2012, but those options currently are worthless because they came with unusually stringent conditions that limit when they can be cashed in. The restrictions prevent Cleveland BioLabs executives from cashing them in until the company’s stock closes at a price of $5 or more for five consecutive trading days.
Most companies come with an exercise price that equals the share price on the day the options are granted – which in this case would have been $1.54 per share. The higher exercise price means that Cleveland BioLabs’ stock will have to mount a major comeback for the options to have any value. The stock now trades for about 50 cents.
But that doesn’t mean the company’s top executives went without.
The board committee agreed in March to issue 150,000 stock options to each of its three top executives as a retention bonus, described as an incentive to keep working at the company and to take managerial steps to bolster its sagging stock. The stock option grant was bigger than the targeted grant the board decided not to award earlier in the year.