Total pay for executives surged in 2010

Total executive compensation at Indiana’s largest public companies continued to rise sharply coming out of the recession, even though many of them have yet to erase the red ink in their shareholders’ portfolios.

Median compensation among Indiana’s five largest companies—Eli Lilly and Co., WellPoint, Simon Property Group, Zimmer Holdings and Cummins—rose 22 percent in 2010, according to IBJ’s tabulation of figures filed by the companies with the U.S. Securities and Exchange Commission. That was on top of a 27-percent rise in 2009.

Among Indiana’s smaller public companies, executive compensation was more mixed, with mid-cap companies seeing a drop in median compensation and small-cap companies seeing a rise.

However, of 252 executives at Indiana companies for whom prior-year comparisons were possible, 199 of them—or 79 percent—saw their overall compensation rise last year.

And 93 of the 153 executives who have been at the top of their companies since 2007 have seen their pay rise. But of those, just 48 have generated positive returns for shareholders since the end of 2007, when the recession officially began.

Forty-six executives are receiving less compensation, in line with their companies’ stock performance. And 14 are earning less money even though their company has generated positive returns for shareholders.

Simon leads pack

Indianapolis-based Simon Property Group outclassed all Hoosier corporations in 2010. Using a new system of long-term stock awards, the company boosted total compensation by roughly fivefold for each of its top five executives.

CEO David Simon received a pay package of cash, stock and perks valued at $24.6 million, topping all other Indiana executives—by far.

About $13.3 million of his compensation came in the form of stock awards that will pay out only if Simon achieves certain targets in the future. The same is true for Simon’s other top brass.

Still, the compensation committee of Simon’s board said it’s working to develop a long-term compensation package for David Simon and, as an opening negotiating tactic, openly declared that it believes him to be underpaid relative to his peers.

“David Simon has been widely recognized as the best and most effective chief executive in an extremely competitive industry and one of the top chief executives in corporate America,” the six-member compensation committee gushed in the company’s proxy statement, released in April.

“The committee has considered for several years that David Simon’s compensation has not been commensurate with his contributions to our success and creation of long-term stockholder value.”

The vast majority of David Simon’s compensation last year—$19.4 million of it—came as stock grants, which will take a few years to vest. The same was true for the other four members of Simon’s top brass.

And Simon’s stock has been hot. It gained 28.5 percent last year and has since risen another 18.5 percent. And even after a sharp decline in late 2008 and 2009, Simon’s shares are now above their value at the end of 2007.

A Simon spokesman declined further comment.

Among companies where pay and stock returns are most out of whack is Carmel-based CNO Financial Group Inc., formerly called Conseco Inc. The life and health insurer has put together 10 straight profitable quarters but has yet to fully win back the trust of investors burned by its 2003 bankruptcy and years-long reorganization after that.

CNO’s stock price has fallen 46 percent since the end of 2007. Yet total compensation has risen 115 percent for CEO Jim Prieur. Other top CNO executives have experienced pay boosts ranging from 40 percent to 90 percent.

Neal Schneider, CNO’s board chairman, said it’s not inappropriate for the company’s compensation to be rising faster than its stock price, since the vast majority of executives’ pay hinges on performance.

Schneider said CNO’s board is trying to be much more modest about its pay compared with the extravagant awards the company once gave to executives, most notably co-founder Stephen Hilbert and his successors Gary Wendt, Bill Shea and Bill Kirsch.

“There’s a major difference from what happened historically and what we are trying to do,” Schneider said.

Prieur said executive compensation has to take into account what other companies are paying executives in similar positions. CNO last year adjusted its pay targets to match the 50th percentile of its peer companies, down from the 75th percentile.

“For our size, I think our pay is appropriate,” Prieur said.

Investors appear to agree. In a non-binding “say on pay” vote in May, 89 percent of shares were voted to approve of CNO’s 2010 executive compensation.

Braly put on spot

Shareholders also approved the large executive compensation at WellPoint, the Indianapolis-based health insurer.

But that doesn’t mean all shareholders are happy about the company’s pay.

During WellPoint’s annual meeting on May 17, shareholder Karen Green-Stone noted that Braly’s 2010 total compensation of $13.4 million was equivalent to the salaries of hundreds of schoolteachers. She then asked, “Would you kindly tell us why you are worth so much more than them?”

Braly defended WellPoint’s compensation as in line with other companies', and vetted by the board, consultants and now shareholders.

“We consider it important to have competitive [pay] arrangements for the CEO and the named executive officers,” she said, adding that the positive “say on pay” vote proved that “our shareholders support it.”

Like CNO, WellPoint has yet to see its stock price recover its 2007 level. But it has soared from a low of $30.10 in March 2009 to about $80 per share now.

CNO’s share price hit a low of 26 cents in March 2009 but is now about $7.50.

In that environment, it’s not surprising shareholders aren’t raising a major stink about executive compensation, said Mark Foster, chief investment officer at Kirr Marbach & Co. in Columbus, Ind.

“If consensus estimates are right for this year, then corporate profits for the S&P will be above where they were prior to ’07,” Foster said. “To the extent that management has contributed to cutting costs and contributed to the bottom line, to me it doesn’t seem out of line.”•