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CEOs’ Salaries: Untold Stories – Part II - November 04,2007
I would like to thank all who have been sending me feedback on these columns. Last week’s article on corporate disclosure and CEOs’ salaries seem to have struck a note with some readers and I am being egged on (not reluctantly) to write Part II to this many sided subject. As one who always aims to please, here we go again.

Should the salaries of CEOs of our public companies continue to be our untold stories? What business is it of ours anyways if ‘Mr. Big’ cuts himself a nice fat cheque at the end of the year, even as our investments under-perform? On the other hand, when things are ‘running right’, the ship is on an even keel and profits are being made, left, right and centre, shouldn’t his (or her) pay check be in name and nature ‘BIG? Doesn’t s/he deserves a big chunk of that action? However, in as much as we do not begrudge the Executive his compensation for skillfully guiding the company into successful harbours, do we get to see how BIG is that compensation?

Corporate disclosure is more than just curiosity and people being just ‘fass’. Shareholders should be insistent on the publication of the details of executive compensation in keeping with good corporate governance practices. Mark Croskery, Deputy General Manager of Stocks and Securities Ltd. believes in this type of disclosure. Says he, “This disclosure helps because shareholders are allowed to see what an executive receives in terms of total compensation and then they can complain, especially if the company produces results which show that the company is underperforming – this type of disclosure is commonplace in developed markets.”

Under-performing Boards
“For example, if an Executive or Board of Directors is leading a company that is underperforming, especially for more than one year, then shareholders and the media should be critical of stock options, etc. as it creates a nasty dilution effect on earnings. Why should an Executive receive stock options and other benefits, if certain criteria are not being met?”

He points to the defensiveness of some Board members and executives when they are asked piercing questions at annual general meetings. “This culture needs to change as more disclosure on executive compensation is required and the media should play and needs to play an important role is this change – with shareholders, analysts and other leading the charge”. Croskery believes that full disclosure speaks to the respect the Board and Executives of a company has for the real owners of the business, the shareholders. Croskery is optimistic though that more disclosure will come in time to the Jamaican market as the investment culture evolves and shareholders become more demanding.

Hitting pay dirt
In my own continuing hunt for the level of disclosure of Jamaica’s CEOs’ salaries I have hit pay-dirt (pun intended). So tell me, which President/CEO received a salary of $8,531,232.66 for 2005-2006 and the same for the 2004-2005 period? In the same breath, his/her Senior VPs earned from $4,279,052 to $5,217,550 for the same periods? The person’s name and organization is at the end of this article. But don’t skip to the end and prove the truth to the ‘fass argument’. Tarry with me a while as we look at how our North American neigbours deal with the disclosure of Executive compensation which shows us that we have not even begun to scratch the surface.
New Securities & Exchange Commission reporting rules compel companies to disclose more about executive pay than ever. According to BusinessWeek (February 26, 2007), the new requirements forces then to reveal, “ from the hundreds of millions some executives stand to gain in severance, pensions, and deferred pay, to any perk worth more than $10,000. Golden parachutes and sybaritic benefits such as club memberships and personal use of company jets…”

Some of the factors that have led to the new disclosure requirements include “empowered activist shareholders” and the role of the revelatory role of financial media in probing and bringing information to the public’s interest. In their move for greater disclosure, governance activists are also targeting “that gift that keeps giving” – pension. “Whereas regular workers typically retire on one-half to two-thirds of their average salary in their last three to five years, some CEOs get far more. Pfizer's deal with its CEO was said to be “unusually rich”. In calculating the CEO’s final pay, Pfizer counted not only salary and bonus, but stock awards that vested through 2004. “That notched his annual pension up from roughly $3.5 million to $6.6 million.”

The salaries in the previous paragraphs were of Dr. Noel Hylton, the President/CEO of the Port of Authority of Jamaica and his Senior Veeps. The information can be found on Page 31 of the organization’s 2006 annual report under the Financial Review section.

 

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