Most of the chief executive officers at South Florida’s largest public companies got a raise last year. Even the minority whose total compensation fell from 2013 levels collected enough to make ends meet.
Total CEO compensation at the 27 largest public companies by market capitalization in Miami-Dade, Broward and Palm Beach counties averaged $8.6 million last year. On average, about half of that pay came from awards of stock and options to buy stock. Base salaries accounted for 10 percent of total pay and averaged just under $1 million — and with good reason: That’s the IRS cap for deducting salary payments as a company business expense.
The remaining 40 percent was CEO income from long-term incentive plans, pension and health plan contributions, and such extras as a car allowance. Some perks are more valuable, among them Vector Group’s $200,000 annual CEO allowance for using a corporate jet.
Are South Florida CEOs really worth all that? Most shareholders thought so, according to shareholder approval votes this year. Most CEOs delivered higher share prices and dividends last year without king-sized pay increases. Others got big raises despite relatively limited returns on shareholder investment.
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Still, the percentage of shareholders favoring company-recommended executive compensation dropped from the previous survey at 11 of the 17 companies that held such votes and disclosed the results this year.
Those votes are a result of the sweeping Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which mandated that public companies conduct nonbinding say-on-pay votes allowing shareholders to vote “for” or “against” the overall compensation of their highest-paid executives. Companies hold say-on-pay votes annually or every three years, based on a separate shareholder vote on frequency. (Some companies have held only one vote since the rule came into play, explaining the shortage of comparative results.)
A review of public filings with the Securities and Exchange Commission by Miami’s Global Governance Advisors shows that more than 90 percent of shareholders voted in favor of executive compensation at nine of the 17 South Florida companies that have conducted and disclosed results of the say-on-pay votes so far this year.
Several South Florida companies saw sharp increases in shareholder approval of their executive pay packages. At Carnival Corp., where Arnold Donald took the helm in July 2013, Carnival shareholders cast almost 85 percent of say-on-pay votes in favor of the cruise-line company’s overall executive pay — up from 58.1 percent the year before. The company gained favor after “addressing concerns and outlining changes to their comp plans in detail,” said Luis Navas, senior partner of Global Governance Advisors, which provided data for this story. “Those companies that are not showing a [pay] link to performance are getting lower say-on-pay votes.”
Compensation of Carnival’s highest-paid executive rose last year, but executive overhead overall was downsized. Donald collected $8.7 million in 2014, more than the $7.8 million in 2013 for board chairman and former CEO Micky Arison, the owner of the Miami Heat, who appears nowhere among the company’s five highest-paid named executive officers in Carnival’s latest proxy statement. Arison’s apparent pay cut last year reduced the number of named executive officers at Carnival with seven-figure annual pay to five from six.
Lennar also reported a double-digit increase in shareholder approval of executive pay, to 90.9 percent this year from 70.7 percent last year. CEO Stuart Miller got a 30 percent raise to $17.9 million of total compensation last year while delivering a total shareholder return of 32.6 percent to owners of Lennar stock.
Before voting, shareholders can review planned compensation of a company’s highest-paid corporate officers — known as “named executive officers” or NEOs, in regulatory parlance — published in proxy statements issued before annual shareholders meetings.
While some CEOs may be more accessible or likeable than others, “shareholders don’t vote based on the person in the CEO role but instead on the defensibility of the comp plan, pay levels and performance levels,” said Navas, senior partner at Global Governance Advisors.
Not all shareholders liked what they saw in this year’s crop of proxies from South Florida companies. Shareholders cut their approval rate for executive pay by at least three percentage points, compared to last year, at six of South Florida’s 27 largest public companies: Norwegian Cruise Lines, Royal Caribbean Cruises, Ryder System, Ultimate Software Group, cigarette company Vector Group, and commercial fuel supplier World Fuel Services.
Pay approval rates at Vector Group and Jarden Group hovered perilously close this year to the 50 percent threshold, below which a company records the results as a failed vote.
BankUnited Inc. failed to win a majority in its say-on-pay vote this year. Shareholders cast only 30 percent of their votes “for” the bank holding company’s executive pay levels, down from 99 percent in 2012, the last year BankUnited held a say-on-pay vote.
Say-on-pay votes are advisory and nonbinding, but a failed vote or a reduction in the shareholder approval rate sometimes motivates the company to review or redo their executive compensation plans, sometimes in consultation with major shareholders. Some companies also hire outside compensation consultants. After the 30 percent vote “for” BankUnited’s executive pay, “the employment agreements for the CEO and the COO have been renegotiated and restated,” Global Governance Advisors reported.
Global Governance Advisors also reported that the failed say-on-pay vote may have been spurred more by information that wasn’t in the proxy statements than what was. Those statements did not include a comparison between CEO pay and performance of stock values and other metrics.
Voters may also have been unhappy about all-cash “retention bonuses” paid to BankUnited’s CEO in each of the last three years.
John A. Kanas, chairman, president and CEO of BankUnited, last year got a 1 percent raise in total compensation to $4.6 million, including a $1.5 million bonus, a $1 million stock award, $1.8 million of incentive-plan compensation, and a base salary of zero. Shareholders, on the other hand, suffered a loss of 9 percent in total value.
The results were cheerier at most of South Florida’s other Top 27, where total shareholder returns outpaced CEO raises. Shareholders got the most bang for their CEO bucks at five South Florida companies that cut the chief executive’s pay: Affiliated Managers Group Inc., Geo Group, Jarden Corp., Office Depot, Platform Specialty Products and Watsco Inc. (Those pure numeric results are different from those reflected in the graph on page ???which correlates the top 25 companies against performance of the other 24.)
At eight of the top 27, CEOs actually made less than in 2013. At Office Depot, for example, CEO Roland Smith took a 74 percent cut in total compensation last year, even though the company’s total return to shareholders reached 70 percent. CEO compensation cuts at the other seven companies ranged from 7 percent for George C. Zoley at Geo Group, a private prison operator, and 30 percent for Watsco’s Albert H. Nahmad, to 47 percent for James E. Lillie of Jarden Corp. and 73 percent for Sean M. Healey, who heads Affiliated Managers Group, an investment management company.
Affiliated Managers awarded no stock to Healey last year; the company’s latest proxy statement cited “our modest stock price decline in 2014 on both an absolute basis and relative to our peer group.” (Affiliated had awarded Healey stock worth at least $14 million in both 2013 and 2012, a two-year period during which the company’s stock price more than doubled.) Healey, a former senior member of the mergers and acquisitions department of Goldman, Sachs & Co., collected $5.3 million of total compensation last year.
Slow economic growth overseas has been a challenge for Boca Raton-based Jarden Corp. The global manufacturer of consumer products, including camping and outdoor equipment, had a net loss of $55.5 million in the first quarter. Net income last year totaled $242.5 million, more than the year before but slightly below the 2012 level.
Watsco stock has traded recently near the high end of its 52-week range, $84.28 to $131.10. But the nation’s largest distributor of heating, ventilation and air conditioning equipment remains vulnerable to weakness in the housing market.
Money-losing Office Depot awarded no bonus, no stock and no stock options to Smith in 2014, the first full year following the company’s merger with OfficeMax in November 2013. Smith was eligible for an annual bonus up to 300 percent of his base salary of $1.4 million last year, based on achievement of certain performance goals. Office Depot had a net loss that widened last year to $354 million from $93 million in 2013.
Among other setbacks, Office Depot reported a net loss of $108 million for the first quarter. The U.S. Consumer Product Safety Commission announced in May that Office Depot agreed to pay fines totaling $3.4 million for failing to report defects in office chairs that caused their seat backs to malfunction. Recently, however, Office Depot shares have traded near the top of their 52-week price range of $4.26 to $9.77. Office Depot shareholders last week voted in favor of a buyout offer from rival Staples Inc. to pay them $7.25 in cash and 0.218 of a Staples share for each share of Office Depot.
CEO compensation grew faster than total shareholder returns at nine of South Florida’s 27 largest public companies, including BankUnited. The others are: ADT Corp., AutoNation, B/E Aerospace, HEICO Corp., Spirit Airlines, Ultimate Software Group, Vector Group, and World Fuel Services.
The most dramatic divergence of shareholder return and CEO pay growth unfolded at World Fuel Services, the largest public company in Florida by revenue, with about $43 billion last year.
Michael J. Kasbar, chairman, president and CEO of World Fuel Services, collected $7.7 million of total compensation last year, a 311 percent increase from 2013 — the biggest percentage raise among CEOs of South Florida public companies. Stock awards worth $5.5 million accounted for most of his total compensation last year.
“The foremost principle of our compensation philosophy is that the compensation of our NEOs [named executive officers] should be ... reasonable in relation to the level of shareholder value created,” World Fuel said in the proxy statement for its annual shareholders’ meeting May 29.
Yet while Kasbar’s total compensation quadrupled in 2014, total shareholder return at World Fuel was 9.09 percent.
That divergence may have contributed to a sharp decline in shareholder approval of executive pay at World Fuel. Shareholders this year cast about 75 percent of their say-on-pay votes in favor of the company’s executive pay levels, down from 98.7 percent in 2014 and 2013.
Spirit Airlines shareholders got a 66 percent total return last year while B. Ben Baldanza, president and CEO, collected a 119 percent raise in total compensation. Spirit shareholders cast say-on-pay votes at their annual meeting on June 16 in Rosemont, Illinois, and the release of results is still pending.
Some South Florida public companies began as small private businesses, family-owned or entrepreneurially run, so company founders with large equity stakes often have substantial control over executive compensation. Yet, there are many examples of South Florida companies without founders among the directors or top management where CEO compensation matches that of much larger companies.
Kasbar’s total compensation last year, for example, nearly matched the pay of Charles W. Scharf, CEO of Visa Inc., which has a market cap of $162.1 billion, about 48 times greater than the $3.3 billion market cap of World Fuel. According to its 2015 proxy, World Fuel bases executive compensation on “our performance in creating shareholder value rather than in relation to any peer group, as there are very few comparable publicly-held companies.”
Other CEOs whose 2014 compensation nearly matched include Howard M. Lorber of Vector Group and James McNerney, chairman and CEO of aircraft manufacturer Boeing, which has a market cap of $92.6 billion, about 38 times greater than Vector’s market cap of $2.4 billion.
Lorber last year collected $29.6 million of total compensation, including stock awards worth about $20 million, making him the highest paid executive at a South Florida-based public company. Vector Group increased Lorber’s total compensation last year by 214 percent from the 2013 level. Vector’s total return on shareholder investment was 47 percent last year.
According to its 2015 proxy statement, Vector Group granted Lorber, age 66, about a million shares of restricted stock in July 2014 “to recognize past and current performance and to serve as a ... meaningful incentive for Mr. Lorber to continue to serve as CEO during the next seven years, even though he is eligible to retire now.”
Meanwhile, shareholder say-on-pay approval of Vector’s executive pay structure has declined in recent years. Vector considered the results of last year’s say-on-pay vote in altering its executive pay structure. For example, the company has adopted a “clawback policy” to retrieve payments to executives for business growth that proves unsustainable. Vector also made the vesting of certain equity awards contingent upon corporate performance.
Nevertheless, Vector shareholders this year cast 57.2 percent of their say-on-pay votes in favor of the compensation of Lorber and other named executive officers, down from 61 percent in 2014 and 62 percent in 2013. Global Governance Advisors also reported that, in this year’s elections of Vector directors, each of the three members of the board’s compensation committee won re-election with less than a 70 percent majority.
Navas said an “industry” has arisen around the CD&A sections of proxies as companies put greater effort into justifying executive pay.
“The average CD&A section five years ago was like five pages,” he said. “Now it’s 15 pages.”
Some South Florida CEOs earn as much pay as national companies that are far larger. In entrepreneur-heavy South Florida, those CEOs are often company founders or members of the firms’ founding families. South Florida CEOs are in bold face; their national pay counterparts are listed below.
SOUTH FLORIDA COMPANY
2014 CEO PAY
2014 CEO PAY
Vector Group: Howard Lorber, president and CEO
Boeing: James McNerney, chairman and CEO
World Fuel Services: Michael J. Kasbar, chairman and CEO
Visa Inc: Charles W. Scharf, CEO
Ultimate Software Group: Scott Scherr, chairman, president and CEO
Altria Group: Martin Barrington, chairman and CEO
Mednax: Roger J. Medel, CEO
Apple Inc: Timothy Cook, CEO
Lennar: Stuart Miller, CEO
Verizon Communications: Lowell C. McAdam, chairman and CEO
Source: SEC filings, Global Governance Advisors
2014 SHAREHOLDER RETURNS VS. CEO PAY GROWTH
5 BEST FOR SHAREHOLDERS
At these companies, shareholder returns grew faster than CEO pay.
COMPANY / CEO
Office Depot: Roland Smith, CEO
Platform Specialty: Daniel H. Leever, CEO and vice chairman
Affiliated Managers Group: Sean M. Healey, chairman and CEO
Jarden Corp: James Lillie, CEO
Watsco Inc: Albert H. Nahmad, CEO
5 WORST FOR SHAREHOLDERS
At these companies, CEO pay grew faster than shareholder returns.
COMPANY / CEO
Ultimate Software: Scott Scherr, president and CEO
AutoNation Inc.: Mike Jackson, chairman, CEO and president
Spirit Airlines Inc.: B. Ben Baldanza, president and CEO
Vector Group Ltd.: Howard Lorber, president and CEO
World Fuel Services Corp.: Michael J. Kasbar, chairman, president and CEO
Source: SEC filings, Global Governance Advisors
A ROUGH GUIDE TO PAY FOR PERFORMANCE
The chart below shows the year-over-year percentage growth in shareholder return from 2013 to 2104, and the percentage growth of CEO pay for the same period. Subtracting the CEO pay from the shareholder growth rate offers a quick glance at the correlation between stock performance and pay. The higher the percentage, the better for shareholders.
SHAREHOLDER RETURN (year-over-year % growth)
CEO PAY (year-over-year % growth)
Office Depot: Roland Smith
Platform Specialty Products: Daniel H. Leever
Affiliated Managers: Sean M. Healey
Jarden: James Lillie
Watsco: Albert Nahmad
GEO Group: Geroge C. Zoley
Equity One: Jeffrey S. Olson
Citrix: Mark B. Templeton
MEDNAX: Rogert Medel
NCL Holdings: Kevin Sheehan
Opko Health: Phillip Frost
Carnival Corp: Arnold Donald
NextEra Energy: James Robo
SBA Communications: Jeffrey Stoops
Lennar: Stuart Miller
Royal Caribbean: Richard Fain
Ryder System: Robert Sanchez
BankUnited: John A. Kanas
HEICO: Laurans Mendelson
B/E Aerospace: Amin Khoury
ADT Corp.: Naren Gursahaney
Ultimate Software: Scott Scherr
AutoNation: Mike Jackson
Spirit Airlines: B. Ben Baldanza
Vector Group: Howard Lorber
World Fuel: Michael J. Kasbar
Source: SEC filings, Global Governance Advisors