Business Monday

Executive pay: How South Florida CEOs stack up

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16 MIAMI HERALD STAFF

In this election year, attention is focused on selection of the nation’s next chief executive. It’s a job that comes with unparalleled prestige and influence. But relatively speaking, it comes with paltry pay.

In this annual review of CEO pay at South Florida public companies, one thing is clear: Running a corporation is more lucrative than running the country.

But even for company chiefs, annual raises are hardly automatic.

An analysis of Securities & Exchange Commission (SEC) filings by 26 public companies with headquarters in Miami-Dade, Broward and Palm Beach counties shows that just half of them paid their chief executive officers more last year than in 2014.

An analysis by the Miami Herald and Global Governance Advisors (GGA) further shows that CEO pay slid at some of South Florida’s biggest and best-known companies, including AutoNation, Lennar, Royal Caribbean and Ryder.

CEO COMPENSATION: INTERACTIVE PAY-FOR-PERFORMANCE TOOL

The ups and downs in CEO pay at South Florida public companies were unusually well aligned last year with the companies’ performance, said Luis Navas, senior partner of Global Governance Advisors. GGA research also shows that 2015 CEO pay and company performance were much more closely aligned in South Florida’s corporate community than at the 50 largest companies in the United States.

“It’s usually been ... people getting raises even in bad times. But this year, what really stood out in the study was that, for a lot of South Florida companies, the pay-and-performance alignment was the best I’ve ever seen,” Navas said. “The boards of directors of South Florida companies” — who control the companies’ executive pay — “seem to have done a very good job this past year.”

The ups and downs in CEO pay at South Florida public companies were unusually well aligned last year with the companies’ performance, said Luis Navas, senior partner of Global Governance Advisors.

To be sure, no CEOs are going hungry. The chief executive post commands total annual compensation of at least $2 million at 24 of the 25 South Florida companies examined.

The Miami Herald and GGA, an executive compensation advisory firm, analyzed corporate proxy statements that public companies file annually with the SEC. The proxies, which disclose executive pay levels, show that CEO compensation in South Florida averaged about $11 million last year.

But the average total compensation for South Florida’s CEOs fell from 2014 to 2015 by 2.06 percent.

 

Nationally, public company chiefs did better, with an average 4.5 percent pay raise last year. That’s almost double the typical American worker’s, according to The Associated Press. It reported that the typical chief executive in the Standard & Poor’s 500 index made $10.8 million, including bonuses, stock awards and other compensation. That’s up from the median of $10.3 million the same group of CEOs made a year earlier.

Locally, South Florida CEOs collectively saw a sharp increase in incentive-plan compensation from 2014 to 2015. But as a group, their bonus and salary income were almost unchanged last year.

For example, at Vector Group Ltd., the Miami-based parent company of a cigarette production business and a real estate business including residential brokerage Douglas Elliman, president and CEO Howard M. Lorber collected compensation totaling $42.5 million last year, almost $13 million more than in 2014. Most of that raise came via a $7.59 million increase in stock awards.

 

Lorber was South Florida’s highest-paid CEO last year, followed by second-ranked Scott Scherr, chairman, president and CEO of Ultimate Software Group, Inc. ($38.3 million of total compensation in 2015) and third-ranked Frank J. Del Rio, president and CEO of Norwegian Cruise Line Holdings Ltd. ($31.9 million).

Lorber and the rest of that highly paid trio were in a league of their own. No other South Florida CEO came close to matching their eight-figure compensation levels.

Locally, South Florida CEOs collectively saw a sharp increase in incentive-plan compensation from 2014 to 2015. But as a group, their bonus and salary income were almost unchanged last year.

Shareholders aren’t likely to be complaining. The tri-county area’s three richest companies for CEOs also shared another distinction: They produced some of the highest returns on shareholder investment in 2015 among South Florida-based public companies.

Vector Group delivered a dividend-enhanced 24.64 percent return on shareholder investment in 2015, which ranked sixth among the 25 companies in the Miami Herald-GGA analysis of corporate South Florida.

Investors in Norwegian Cruise Line Holdings — parent of lines Regent Seven Seas, Oceania and Norwegian Cruise Line — banked a 25.32 percent return on shareholder investment in 2015, the fourth-highest in South Florida. Ultimate Software’s shareholder return totaled a hefty 33.17 percent, the second-highest in the 25-company survey.

“For the first time in a long time, three cruise companies’ pay levels are in the top 10” among South Florida public companies, Navas said. “It’s a good sign that industry continues to do very well.”

John Mestepey, a veteran executive recruiter in Miami, said the long-term direction of executive compensation at South Florida-based public companies is heading north: “We’re seeing compensation locally moving upward for a number of reasons.”

As South Florida companies expand nationally, “they have to compete for talent and they have to pay compensation comparable to levels in other major cities around the U.S,” he said. In addition, “people are demanding and getting compensation levels that would justify a move to Miami and afford the costly real estate here.”

At the same time, however, CEO pay generally is becoming more variable and more dependent on the company’s performance, Mestepey said.

Aligning shareholder returns with executive rewards can be an inexact financial science, though.

 

Consider Dycom Industries Inc., a telecom construction contractor based in Palm Beach Gardens that produced a triple-digit shareholder return of 121.49 percent in 2015. That was the best return by far among the 25 South Florida companies surveyed.

That accomplishment didn’t qualify the company’s top officer for a triple-digit pay raise, however. Steven E. Nielsen, president and CEO of Dycom, got a relatively moderate pay raise last year, a 34 percent increase from the 2014 level.

Nevertheless, Nielsen at least got a bump up in pay.

Aligning shareholder returns with executive rewards can be an inexact financial science.

The total compensation of nine South Florida CEOs dropped from 2014 to 2015, and the compensation of two others remained essentially unchanged. (No such year-over-year pay comparisons were possible for two other South Florida CEOs who got their jobs after, not before, 2014 began.)

The three South Florida public companies that paid their top officers the least accounted for the biggest cuts in CEO compensation in 2015. CEO pay was lowest last year among South Florida public companies at Platform Specialty Products Corp., second-lowest at Spirit Airlines, Inc., and third-lowest at World Fuel Services Corp.

 

The biggest South Florida company by revenue, Doral-based World Fuel, cut the compensation of chairman, president and CEO Michael J. Kasbar from $7.97 million in 2014 to $2.12 million in 2015. His 72 percent reduction in compensation was the deepest cut in South Florida CEO pay last year. The pay cut mirrored a drop in shareholder return by 17.6 percent from the previous year.

The second-deepest was a 70 percent cut in the compensation of Daniel H. Leever, former CEO of West Palm Beach-based Platform Specialty Products Corp., where shareholder return dropped 44.75 percent.

Last year, the materials company was the only public company in South Florida that paid its CEO less than $1 million. Leever’s compensation totaled $904,479 last year, down from $3.014 million in 2014. He retired last December as the company’s CEO.

Spirit Airlines last year imposed South Florida’s third-deepest cut in CEO pay on B. Ben Baldanza, who resigned as the company’s chief executive in January. He took a 66 percent cut in total compensation to $2.091 million last year, down from $6.167 million in 2014. Shareholders suffered as well, losing 47.27 percent on their return over the previous year.

Baldanza exited Spirit Airlines with a parachute that, if not quite golden, was at least gold-plated: He will collect severance in installment payments totaling $1 million, and he’ll retain a lifetime pass to travel on Spirit Airlines flights, among other takeaways.

Shareholders of many public companies are putting downward pressure on executive compensation through so-called “say-on-pay” votes. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 mandated that public companies conduct non-binding shareholder votes “for” or “against” the companies’ overall executive pay.

Shareholders also decide on the frequency of say-on-pay votes, which public companies must hold at least once every three years. At their annual meeting on June 3, for example, shareholders of West Palm Beach-based Platform Specialty Products voted to conduct say-on-pay votes every year. They also cast 99 percent of their votes in favor of the company’s overall executive compensation in their first say-on-pay vote.

 

Less than 50 percent approval from shareholders is considered a failed say-on-pay vote for a company. Many South Florida companies are winning approval rates above 90 percent.

Others still aspire to such results. At Vector Group, for instance, say-on-pay approval rates have been declining since 2011, when 72.2 percent voted in favor of management’s compensation plan.

This year, at Vector’s annual meeting of shareholders on April 28, the say-on-pay approval rate slipped further to 55 percent. Last year, shareholders of the Miami-based company cast 57 percent of their votes in favor of Vector’s overall executive pay, down from 61 percent in 2014.

In the proxy statement for the annual meeting in April, however, Vector defended its pay program and emphasized that a big percentage of direct executive compensation “is variable [and therefore at risk] depending on performance … 91.5 percent in the case of Mr. Lorber,” the company’s $42 million CEO.

Other companies’ say-on-pay approval rates are in recession, too. The Miami Herald-GGA analysis shows that six of 14 South Florida public companies that held say-on-pay votes on 2015 compensation got lower approval rates. For example, at their March 15 annual meeting, shareholders of Boca Raton-based ADT Corp. cast 77 percent of their say-on-pay votes in favor of the company’s executive compensation, down sharply from 98 percent a year earlier.

The Miami Herald-GGA analysis shows that six of 14 South Florida public companies that held say-on-pay votes on 2015 compensation got lower approval rates.

In this less-forgiving, post-Dodd-Frank world, public companies reluctant to revise their executive compensation are likely to face persistent shareholder pressure to do so.

“Companies are receiving consistently low say-on-pay votes until shareholder concerns are directly addressed,” GGA reported. “Shareholders continue to vote against executive compensation at companies that don’t make any changes.”

Said Navas: “You still have companies like them and Ultimate Software that continue to get not the greatest say-on-pay votes” — in part because of the influence of institutional shareholders.

“Companies need to realize that pay is one of many factors institutional shareholders are looking at when voting on pay. It could be a pay-design issue. It’s not just the dollar amounts. What’s the process and what’s the explanation of the tools you are using to get there?”

Bang for the (CEO) buck: Who delivers?

Many public companies calculate CEO compensation based largely on financial performance measures, and few measures matter more to investors than total shareholder return: the percentage growth or decline in a stock’s price (and its dividends, if any).

But the pay-for-performance approach doesn’t always put shareholder returns and CEO pay in perfect alignment.

For example, Dycom Industries Inc., a Palm Beach Gardens-based telecom construction contractor, produced a stellar shareholder return of 121.49 percent in 2015, the best by far among 26 South Florida-based companies analyzed by the Miami Herald and Global Governance Advisors (GGA).

However, Dycom president and chief executive Steven E. Nielsen got a relatively moderate pay raise in 2015, a 34 percent increase in total compensation from 2014, making him one of the most efficient South Florida CEOs in rewarding shareholders last year, according to the analysis.

CEO compensation increased last year at seven public companies headquartered in South Florida even though their 2015 shareholder returns were flat or negative: ADT Corp., Affiliated Managers Group Inc., B/E Aerospace Inc., SBA Communications Corp., Geo Group, Inc., NextEra Energy, Inc. and Opko Health, Inc.

CEO pay declined at nine South Florida public companies last year from 2014 levels, and it was unchanged at two others. But holding down executive pay is small consolation for investors when shareholder returns go south.

For example, Robert E. Sanchez, chairman and CEO of Ryder System Inc., took a $13,315 compensation cut last year, which had a negligible impact on his $5.6 million in total compensation. Bloodied investors probably took little comfort from his minor pay cut, which did not keep the Miami-based logistics company from rolling over and spilling out a negative shareholder return of -37.63 percent in 2015.

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