Top execs earned 9 4 more in 2007

It was a good to be the boss in 2007. The median compensation for top executives at the Buffalo Niagara region’s publicly traded companies rose almost three times faster than the average worker’s pay, according to a Buffalo News analysis.

The median pay increase for the 50 top executives included in the analysis jumped by 9.4 percent last year as a surge in stock-based compensation helped the region’s chief executives overcome shrinking bonus payments.

That pushed the median total compensation for those executives up to $787,292 last year, another all-time high for The Buffalo News annual analysis of compensation trends at the Buffalo Niagara region’s publicly traded companies.

A total of 16 executives earned more than $1 million last year, down from 17 in 2006 and 20 in 2005, but still the third-highest since the Buffalo News began surveying local CEO pay trends in 1992.

Four local executives — led by National Fuel Gas Co. Chairman and Chief Executive Officer Philip C. Ackerman’s $4.6 million pay package — topped the $2 million mark in total compensation.

The executive pay data, gleaned from proxy statements filed with the U. S. Securities and Exchange Commission, shed light on how top managers get paid and highlight the elements that push their compensation to levels that are far above what the average worker is paid.

Not only do top local executives earn hefty salaries and bonuses, they also receive ever more lucrative perks, ranging from enhanced pensions to company-paid autos and club memberships.

Meanwhile, the average worker in the Buffalo Niagara region is getting by on only a little more than what he or she earned a year ago. The average weekly earnings of workers in Erie County grew by 3 percent to $715 from October 2005 to September 2006 — an increase that amounts to about $21 a week, according to figures released last month by the U. S. Bureau of Labor Statistics.

When you factor in inflation, which rose only a little slower than local wages during that same period, the purchasing power of that weekly wage is up by the equivalent of less than $2.

Beyond that, the gap between what top executives earn and what the average worker makes remains wide. The median pay of top local executives is 21 times the $37,180 earned by the typical local worker, who in most cases is also being forced to shoulder a greater portion of soaring health insurance costs.

“They can afford our gas much more than we can,” said Jerry M. Newman, a University at Buffalo professor and an expert on compensation issues.

“There is little doubt that CEO pay has increased rapidly in recent years, while the pay of the average corporate employee has not kept pace,” said Larry Bumgardner, a Pepperdine University business professor who conducted a recent analysis of CEO pay patterns.

Still, pay levels for local CEOs are far lower than the $8.8 million in average compensation that top executives at the nation’s biggest companies earned last year, according to a survey of 200 companies with more than $5 billion in annual sales by compensation consultant Hay Group.

Options

For this year’s survey, The News changed the formula it used in past years to calculate CEO pay to match the methods adopted last year under the SEC’s new executive pay disclosure rules. The main effect of that shift is that profits from executives who cash in stock options no longer are included in The News calculations, although they still are listed in the more detailed table that appears on this page.

Instead, SEC rules require companies to place an immediate value on the options granted to executives based on a complex formula developed by Nobel Prize-winning economists. But it’s also likely the ultimate value of those options will be different from the figure reported in a company’s proxy statement because that amount hinges on the actual change in the firm’s stock price.

Stock options give executives the right to buy shares at a fixed price at some point in the future — usually during the following 10 years. But those stock options have value only if the company’s stock goes up. If it does, the executive can cash in the options and pocket the difference between the stock price at that time and the exercise price of the options. If the company’s stock goes down, the options are worthless.

Options can pay off in a big way if a company’s stock soars. Ackerman reaped a $9.1 million profit last year by cashing in a portion of the stock options he’d been granted by the company over the last decade as soaring energy prices pushed its stock to near-record levels today.

Ackerman still has plenty more untapped profits from the 1.71 million options that he can exercise at any time. With National Fuel’s stock just shy of its all-time high, those options are worth $51.7 million.

“The stock option awards are the result of his tremendous leadership,” said Julie Coppola Cox, a National Fuel spokeswoman. “The value they now hold is the result of the great success the company has achieved.”

At M&T Bank, chief executive officer Robert G. Wilmers also pocketed $9 million by exercising some of his stock options.

Pensions and perks

Top executives also enjoy lucrative supplemental pension plans that far exceed the retirement plans available to regular employees.

National Fuel’s Ackerman, who is set to retire as chief executive officer this June after 39 years with the company, has accumulated pension benefits that have a present value of $13.8 million. Most of those pension benefits come from a special pension plan for top executives, whose benefits are worth almost 9 times more than the benefits Ackerman accrued under the company’s regular pension plan.

At Moog Inc., which closed its traditional pension plan to new hires beginning this year in favor of a defined contribution plan, such as a 401(k) plan, CEO Robert T. Brady’s $5.2 million supplemental executive pension is worth more than four times the benefits he has accrued under the company’s regular pension plan.

Top executives also receive perks that routinely add up to tens of thousands of dollars for expenses such as club memberships, auto costs and even, in the case of Moog, business related travel expenses for executives’ wives.

Sovran Self Storage’s top executives get reimbursed for medical expenses that aren’t covered by the company’s standard health insurance, leading to $5,000 in payments last year to Chairman Robert J. Attea and $3,531 to President Kenneth Myszka. Sovran’s top executives also get $15,600 a year to apply toward auto expenses, club membership and other items.

Greatbatch Inc. pays top executives up to $5,000 for financial planning services during their first year at the company and up to $2,500 in all other years.

M&T reimbursed Wilmers, who lives in New York City, for parking, meals and expenses associated with an apartment he keeps in Buffalo. The bank also paid $469,921 for Wilmers’ business use of a private aircraft that he half-owns.

Mod-Pac Corp. vice president Larry

N. Kessler, who resigned from the Buffalo specialty printing company in August, didn’t drop off the firm’s payroll until mid-April, collecting $108,000 in pay and receiving fully-paid health benefits during the 30-week period.

Greatbatch also helps all employees pay for college tuition, textbooks and laboratory fees for themselves and their children — a program that dates back to company founder Wilson Greatbatch, a staunch advocate of higher education. For senior VP Susan Bratton, that education program was worth $46,360 last year, while chief financial officer Thomas

J. Mazza received $46,360 in tuition benefits for his children.

The program, which is not as lucrative as it was before the company went public, pays all higher education costs for current employees who have been with the company for at least 10 years. For workers hired before 2003 who have been at the company for less than 10 years, the company pays education costs for children at a rate equal to 10 percent for each year of employment.

Tuition reimbursement for Greatbatch workers hired in 2003 and beyond is capped at an amount equal to tuition for a local state university, or roughly $5,000 a year. But beginning in 2007, Greatbatch’s top executives were exempted from the reimbursement limit that many other, lower-paid employees face.

Forgoing benefits

Sometimes, executives do say enough is enough. Lancaster environmental services firm Ecology & Environment, for instance, doesn’t offer its top executives any perks that aren’t available to its regular employees.

M&T’s Wilmers has turned down any stock-based pay in each of the last five years because he already owns more than 4 percent of M&T’s stock and “believed that he had been fairly compensated due to the long-term performance of the company’s stock,” the company said in an SEC filing. Sovran’s compensation committee recommended that its top three executives get 5 percent salary increases in 2007, but the executives decided to accept 2 percent increases instead, so the extra money could be used to give even bigger raises — from 8 percent to 13 percent — to other top managers.

And while Financial Institutions scaled back its salary increases to top executives to an average of 1.6 percent for 2008, chief executive Peter Humphrey turned down the 2.5 percent merit pay increase he was eligible to receive.

The trend nationally is to base more of an executive’s pay on a company’s long-term performance — a shift that Newman attributes to the more detailed disclosure requirements on executive pay.

“They make things more transparent, and I think transparency increases the link between pay and performance,” he said.

Seneca Gaming Corp., for instance, did away with its performance-based bonuses because the company’s rapid expansion made it too easy to meet the performance targets. Instead, Seneca increased salary levels while it re-evaluates its approach to compensation.

Some companies have stock ownership guidelines for their top executives. Financial Institutions, for instance, requires Humphrey to own shares worth at least $398,169 — his base salary, while other top executives must own shares worth at least $50,000 by 2010. Greatbatch Inc. chief executive Thomas G. Hook is required to own more than $2 million in the Clarence medical products and battery manufacturer’s stock by 2011.

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Top execs earned 9 4 more in 2007