Big bucks for the bosses
By Rick Daysog
Advertiser Staff Writer
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The average pay for Hawai'i's top bosses grew more than 27 percent last year due in part to new federal rules on reporting of stock option awards and other incentive pay.
An Advertiser study of company filings at the U.S. Securities and Exchange Commission found the chief executive officers of Hawai'i's seven largest publicly traded companies earned an average of $2.6 million in 2006, which was up from the year-earlier's $1.8 million.
The pay was equivalent to about $7,420 per day and was more than 59 times the median household income in Hawai'i.
The increase came as earnings and stock prices for several local companies declined slightly from the 2005 and 2004 boom years. They're also in line with the percentage increases that Mainland CEOs are seeing in their annual pay checks.
A February survey by Redmond, Wash.-based ERI Economic Research Institute, which specializes in executive compensation and cost-of-living studies, found that the average CEO nationwide saw their cash payments — base salary and cash bonus but not including stock options — grow 28.7 percent in 2006 from the year-earlier period.
U.S. CEOS AVERAGE $4.9M
ERI said the total cash compensation for U.S. chief executives — which includes figures for the heads of large U.S corporations like Microsoft Corp. — averaged out at $4.9 million, which was up from the year-earlier's $3.9 million.
In Hawai'i, only one CEO topped the $5 million mark: Alexander & Baldwin Inc.'s CEO Allen Doane.
According to A&B's proxy, Doane received $7.6 million in total compensation last year, which was up 55.6 percent from his 2005 pay of $4.9 million.
Doane received $765,000 in base pay, $1.5 million in stock option awards and incentive pay and more than $3.6 million in stock awards.
Doane's pay increase is in large part due to the new SEC regulations implemented on reporting of stock options and other stock awards.
The new rules are designed to provide investors with more information about what the companies pay their CEOs.
But in cases like Doane's, the practices could lead to double-counting and could artificially boost the amount of options and other stock awards for 2006, said Bill Coleman, chief compensation officer at Salary.com, a Waltham, Mass.-based company that specializes in employee pay data.
In the past, companies would report the amounts of stock and options that they award during the year. Now they must report the amounts of stock and options that vest, or become payable, in that year. This could include stock options that were awarded in previous years and were reported in past proxies, Coleman said.
"You're going to see crazy numbers when you compare this year with last year," Coleman said. "It's like comparing apples and orangutans."
MILLION-DOLLAR CLUB
The Advertiser survey only includes pay figures for publicly traded companies and doesn't include compensation figures for such companies as Castle & Cooke Inc. and First Hawaiian Bank that are no longer publicly traded.
They also don't include figures for large nonprofit companies like the Hawai'i Medical Service Association, which paid its CEO Robert Hiam $1.1 million in salary and bonus last year.
Six of Hawai'i's seven CEOs received $1 million or more last year. Only two saw their pay drop from the previous year. Here's a snapshot:
She didn't get a bonus but was paid $370,204 in options, stock awards and other cash-based compensation and perks.
Lau's total compensation package was skewed by a $2.2 million, one-time gain when she switched from an American Savings' pension plan to one for HEI executives.
Figures for Hawaiian Airlines CEO Mark Dunkerley were not available. The company said it expects to file with proxy with the SEC later this month.
'GOLDEN HANDCUFFS'
Generally companies' board of directors have a committee that is responsible for setting the pay of the business' top executives. Usually the committees try to base the compensation packages on a level that's comparable to what's paid within their industries for companies that are similarly sized.
The annual bonus component, which can represent up to a third of an executive's pay, typically is tied to several annual financial performance targets relating to the company's annual earnings or its stock prices.
For instance, Central Pacific, parent of Central Pacific Bank, paid its CEO Arnoldus a $313,930 bonus last year after the company's earnings rose 9.2 percent and its stock increased 7.2 percent. Morton Kinzler, Barnwell Industries Inc., received a $950,000 bonus during its 2006 fiscal year after the 50-year-old real estate and drilling company posted record earnings, according to Russell Gifford, Barnwell's chief financial officer.
HEI did not pay a bonus to its CEO Lau because the company did not meet some of its performance targets, according to company spokeswoman Suzy Hollinger. HEI's 2006 income was down 14.8 percent last year.
To be sure, the bulk of the CEO pay this year was in the form of long-term incentive compensation.
That component is typically based on a company's three-year to five-year financial performance.
Some local executives received large stock and option awards due to their company's performances during the 2003 to 2005 economic boom, when companies' earnings hit record or near-record levels.
Such incentive pay not only serve as "golden handcuffs" to retain the executives but they also provide an inducement for the CEO to follow the company's long-term strategic plans, said Jim Brennan, senior associate at ERI Economic Research Institute.
"The logic of such a plan is that the board of directors want their executives to keep working on this long-term program and not get distracted by short-term issues," Brennan said.
"They could have a rotten year but they can be paid for the company's strong performance three years ago."
In the case of Alexander & Baldwin's Doane, the company's performance was slightly down last year compared to a robust 2005. But the company's longer-term record has been strong and that's reflected in the increases in Doane's stock and option awards.
During the past five years, revenue at Alexander & Baldwin's real estate division has grown at a 14 percent annual compounded rate. In 2006, the division's operating profit hit the $100 million level for the first time, even as the local real estate market began to soften.
The company's shipping unit, Matson Navigation Co., lost a profitable shipping alliance to Guam last year but Matson's performance still topped goals set for it.
"Despite these challenges, actual operating performance in 2006 exceeded expectations, with consolidated net income exceeding targets and approaching 2005 levels," the company said in an e-mail.
"A&B performed well in 2006, and a significant portion of compensation is tied to performance. Had the company not performed as well, these numbers would have been very different."
Reach Rick Daysog at rdaysog@honoluluadvertiser.com.
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