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Monday, February 27, 2012

Who was the most overpaid CEO?

Who was the most overpaid CEO?

Irani rakes in $372.8 million over 3 years
Featured: Ray Irani, former CEO, Occidental Petroleum

Originally published: Feb. 23, 2012

Who's the most overpaid CEO? Opinions vary, but a new study points the finger at former Occidental Petroleum (OXY) CEO Ray Irani.

Conducted by Swiss research firm Obermatt, the study ranked the 100 largest companies in the U.S. by stock performance and profit growth, then ranked the CEOs of those companies by realized pay.

If rich CEO pay deals brought shareholders better performance, you would expect to see a correlation between performance and CEO pay rankings. But there wasn't any.

This puts to lie the excuse that huge CEO pay deals are justified because boards need to pay up to find the best talent -- and to the notion that richly paid CEOs are worth every penny because they have superpower skills.

So why point the finger at Irani?

Over the three years the study looked at, 2008 through 2010, Irani got $372.8 million in realized pay. That made him tops for pay of all the CEOs.

In contrast, using Occidental Petroleum's stock and profit growth as the benchmarks, the company was far from the best performer. In fact, it ranked No. 65 of 100.

Based on their performance rankings and pay comparisons, Obermatt calculated that Irani should have earned only $48.2 million for the three years. In short, he was overpaid by 674% -- some $324.6 million.

That's convincing enough to make Irani my "One-Percenter of the Week" this week.

Irani stepped down as CEO in 2011 but remained as chairman, following years of raised eyebrows about his pay from investors and pay experts alike. "He has featured in our top 10 highest-paid CEO table three times in the past five years," says Paul Hodgson at GMI, which studies executive compensation. "He was the highest-paid oil executive almost every year, but he was not running the biggest company or the most successful. At one point, we branded Occidental Petroleum a serial overpayer."

Particularly galling was Occidental's practice, at one point, of setting the return-on-equity hurdle -- a common measure of shareholder value -- for some payouts below the level achieved for the prior three years. "That's just giving money away," says Hodgson.

The rich Irani pay deals also attracted the ire of activist investors like the California State Teachers' Retirement System and Relational Investors, which were aggressive in getting a "say on pay" vote before Occidental shareholders a year before those votes became more common. Shareholders voted against Irani's pay, and the board backed down by trimming CEO pay.

Though he's gone as CEO, it's still instructive to ask: How did Irani pull off this feat for so many years? Analysts offer these explanations.

First, boards that are too close to management don't do a great job of looking out for shareholder interests, and that may have been the case here. Next, boards sometimes overpay because they are worried about losing their CEOs. To prevent this, they decide to pay their CEOs above the median. But when too many boards all do this at once "pay moves up, for no other reason," says Hermann Stern, the CEO of Obermatt. "I think that could explain a lot of the upward trend in CEO compensation."

One fix that would cut out much of the excessive pay would be to require company stock to outperform a market index before the CEOs can cash out stock options. This would prevent CEOs from banking big payouts merely because their stocks go up with a rising market.

Occidental declined to comment. But in the past when I have written about Irani's pay, the company has responded that his pay reflects "outstanding leadership" which has brought "excellent performance and exceptional returns for shareholders."

Company filings also state that after Irani became CEO of Occidental in 1990, he helped develop it from a conglomerate of unrelated businesses into the fourth-largest oil and gas company in the U.S.
HP CEO's $16 million bonanza
Featured: Meg Whitman, CEO, Hewlett-Packard

Originally published: Feb. 17, 2012

How would you like to land a new job and earn $16.5 million in the first four weeks?

That's a crazy fantasy. Unless you're former eBay (EBAY) CEO Meg Whitman.

Earlier this month, we learned that computer-maker Hewlett-Packard (HPQ) granted her $16.5 million in pay for the company's last fiscal year, virtually all of it in options, at the end of September when she signed on as CEO.

Because there were only four weeks left in the fiscal year, that works out to annualized pay of $198 million. This de facto "signing bonus" earns Whitman a spot as my latest "One-Percenter of the Week."

Perhaps it was just great timing. Since HP's year finishes at the end of October, her September hire meant she was going to be due another dollop of pay after Nov. 1, to cover her work for the next year. In the middle of December, she got a fresh round of options and restricted stock. I estimate these new grants are worth $9.4 million, and there's probably more to come.

In fairness to Whitman and HP, she won't realize the full value of her incredibly rich four-week pay package any time soon, said CEO pay expert Paul Hodgson of GMI. The options vest in two pieces, over several years. And the stock has to go up 20%, and then 40%, for her to be able to cash out two groups of options. An additional 20% has no performance hurdle.

Now, it is refreshing to see this pay delayed by performance metric in a CEO's options, and it's true she won't realize it for a while. But it is also customary to consider the value of the options at the grant date as part of the overall pay for a CEO for a given year -- last year in this case.

We can also credit HP for capping her cash salary at $1 a year, because CEO salary at a company this size can typically run $1 million or more. But as I have pointed out (in "The myth of the $1 CEO"), the number is something of a ruse. The real largesse for CEOs often comes in the form of stock and options.

Despite these nods to HP, it's important to remember that Whitman's four-week reward comes from a company that has a history of overpaying CEOs.

Former CEO Mark Hurd got an average of $34.6 million a year in realized pay for 2007 through 2010, according to GMI, which considers total compensation for a CEO rather than company-estimated pay. That's more than triple the median CEO pay at large companies. Hurd also got $12.2 million in cash severance as he left the company in the summer of 2010, even though he departed under a cloud after the company determined he had misrepresented expenses.

Hurd's big payout was part of "the company's history of abrupt CEO exits that have proved costly to investors," says the shareholder-advocacy group ISS Proxy Advisory Services. Léo Apotheker got $16.3 million in realized pay and $12 million in severance for serving as the CEO for only about a year before Whitman came in last September.

Is pointing out these rich pay levels just a matter of envy? Not really. Studies show there's a hollowing-out of the middle class, as the top 1% have garnered an outsize share of the wealth created by our country over the past 10 years. Payouts like these to HP CEOs show us how this money gets doled out.

Such compensation also raises questions about whether the HP board is too close to management. Boards are supposed to look out for shareholders -- in part by not overpaying executives. ISS has questioned the independence of HP's board in recent years, and GMI has issued red flags against HP's board in four of the last seven years, in part because of these rich pay levels.

The lasting benefits to shareholders from this largesse are also hard to spot. Shares peaked briefly above $52 in 2007, the fell sharply to the $27 range. They popped back up to near $54 in 2010, but again dropped into the $20s before Whitman took over. They're up since, but still below $30.

HP declined to comment. But in filings, HP says Whitman is worth her pay because she brings "unique experience in developing transformative business models, building global brands and driving sustained growth and expansion," as well as "strong operational and strategic expertise."

Time will tell. But she has experience at the prestigious Bain & Co., the consulting firm where Republican presidential candidate Mitt Romney made his wealth. More importantly, while serving as CEO of eBay from 1998 to 2008, she oversaw impressive growth and became a billionaire.

Whitman went on to spend $140 million to try to get elected as governor of California in 2010. She failed. But the pay is a lot better at HP, anyway.
Facebook chief's $28 billion IPO
Featured: Mark Zuckerberg, CEO, Facebook

Originally published: Feb. 10, 2012

Wouldn't it be nice to own so much of a hot stock that each time it went up a dime, you'd be $53 million richer?

That's the position Facebook founder Mark Zuckerberg will be in when his company goes public, perhaps in May.

Zuckerberg owns 533.8 million Facebook shares, including 120 million options that he's eligible to cash out. If Facebook hits the market at the anticipated $100 billion in total worth, his stake is worth about $28 billion.

The position is so large that each time his stock moves up a dime, he'll make as much as 1,080 typical U.S. households to earn in a full year. This stunning moneymaking ability makes Zuckerberg my latest "One Percenter of the Week."

Yes, one could argue that Zuckerberg, who invented Facebook and managed it into a company grossing more than $4 billion a year, deserves every penny. And some will say any criticism is simply envy. But studies show there's an ongoing hollowing-out of the middle class in the U.S., and a growing divide between the wealthy and the rest of us. Long term, that's not good for any nation or economy.

Zuckerberg's $28 billion windfall is a case study in the concentration of power and wealth. This 27-year-old wunderkind will hold 28% of the company's market value and all the decision-making power, which already has some investors nervous.

2 big issues

This illustrates at least two key issues in the debate over the 1% versus the rest of us:

The first is taxes.

If you were troubled by the revelation that presidential contender Mitt Romney pays less than 15% of his income in taxes, you'll be flabbergasted by this: Zuckerberg's IPO payday may go largely untaxed.

True, Zuckerberg would trigger a tax bill of more than $2 billion if he exercises his 120 million stock options, one reason he plans to sell $5 billion in stock. But that could be the last tax bill he ever faces. Assuming he holds off selling any more shares, his tax would be zero, because shareholders pay taxes only on realized stock gains. (If he sells, he'd pay at capital gains rates -- Romney's rates.)

How could he enjoy his wealth without selling shares? He could pledge the stock as collateral against big loans and spend that money, a tactic used by Oracle (ORCL) CEO Lawrence Ellison, says David Miller, a tax expert and partner at Cadwalader, Wickersham & Taft.

He could keep those loans outstanding until he died, at which point his estate would have to pay them off. When he passes the stock on to a spouse, there would be no tax bill. She would pay tax only on the appreciation in those shares from the time he died until she sold the stock. This year's $23 billion windfall (after the $5 billion expected sale), and anything the stock gains over his lifetime, would never be taxed.

Meanwhile, Zuckerberg's CEO cash salary is being dropped to just $1 a year. While that's basically a ruse – read "The myth of the $1 CEO" -- it means that he'll avoid even more taxes, since there will be virtually no salary to tax. He might have to pay tax on some perks, though boards sometimes opt to pay those tax bills for CEOs. (For more, see “Facebook billionaire’s tax bill: Zero?”)

The second issue is power.

The super-wealthy don't have to let anyone tell them what to do -- –and in this case, that includes shareholders.

Through his own holdings and alliances, Zuckerberg will control the voting power of 1 million Facebook shares, 57% of the stock. Under the terms of the IPO, he also names Facebook's board of directors. This is unusual. Boards are normally elected by shareholders to look out for their interests -- in part by keeping an eye on CEOs.

"It's not a good thing because shareholders have absolutely no say," says David Rudow, a tech sector analyst for Thrivent Asset Management.

This has already raised red flags. The California State Teachers' Retirement System, a huge pension fund which owns Facebook shares bought in the private market, says it is protesting to the company.

This certainly gives potential IPO buyers something to worry about. Of course, it's possible Facebook will keep going and growing with one guy calling all the shots; so far, it's working. But be aware: If you buy Facebook shares, you're betting it always will.
Viacom boss still among the highest-paid execs

Featured: Philippe Dauman, CEO, Viacom

Originally published: Feb. 7, 2012

In tough times, a lot of Americans are making do with less -- so it's good to see some of the highest-paid people in the country have to as well. For example, Viacom (VIAB) CEO Philippe Dauman just took a cut of nearly 50%.

Of course, even after that, he's still one of the highest CEOs in the country.

That's because Viacom has been exceedingly generous with Dauman, even compared with many others atop the 1% of wage earners in the country.

Viacom reported Jan. 27 that Dauman's pay was $43 million in 2011 -- actually a little more than half the $84.5 million he got in 2010. It still put Dauman near the top of the CEO pay hierarchy, at four times the median S&P 500 CEO pay of $10.6 million for 2010 (the latest year available), as calculated by Equilar, an executive compensation research firm.

So for still managing to be one of the highest-paid people in the country despite a 50% pay cut, I'm making Philippe Dauman the latest "One-Percenter of the Week."

A Redstone favorite?

How did Dauman pull off such an amazing feat? It probably helps that he is a longtime associate of Sumner Redstone, who, along with his family, holds a controlling interest in Viacom -- 80% of the voting shares. Redstone is Viacom's executive chairman. He is also executive chairman and founder of CBS, which spun out of Viacom-owned Paramount at the end of 2005.

Redstone controls Viacom and its board. So when it comes time for Viacom's board to set Dauman's pay, the CEO knows the right people.

In addition to $3.5 million in base salary in 2011, high even by CEO standards, Dauman got a $20 million cash bonus and $19.3 million in stock and options grants. He also got $232,000 worth of personal use of the company jet -- free flights worth more than four times the average household income in the U.S.

His pay was $84.5 million the year before largely because of a $70.4 million stock-and-options grant. Dauman has been getting well-above-average CEO pay for some time. He got $34 million in 2009 and $27.9 million in 2008.

Why high pay matters

Why should we pay attention to deals like these? Two reasons, and neither of them has to do with envy.

First, there's a growing wealth divide in our country that has economists worried, and even Republican politicians are making it an issue. Studies show this is contributing to a hollowing-out of the middle class, contributing to economic instability. If people feel like they have less of a shot at joining or staying in the middle class, they get frustrated and possibly drop out of the workforce, which doesn't help anyone.

Second, investors should worry because excessive CEO pay is a sign of a weak corporate board that may not be working hard for shareholders. And Viacom's pay levels have come under fire recently.

GMI, an independent corporate governance research company, gave Viacom an "F" for corporate governance in 2010 because of "serious and ongoing concern" about executive pay, and the concentration of power in Redstone's hands. ISS Proxy Advisory Services, which advises professional money managers how to vote at annual meetings, also views Dauman's pay as a red flag that signals a lack of board independence and questionable governance at Viacom.

Viacom's defense

Viacom responds that almost 90% of Dauman's compensation is performance-based or in the form of stock, aligning his interests with those of stockholders. So his 2011 compensation reflects the "achievement of outstanding operational and financial results, including double-digit growth in operating income and adjusted net earnings, and significant outperformance of the S&P 500," says Viacom spokesman Jeremy Zweig.

Viacom stock has risen 25.5%; it closed Feb. 3 at $48.36, up from around $37 where it was at the end of September 2006, the month that Dauman became CEO. In the same time frame, the S&P 500 has fallen about 7.5%.

And in fairness to Dauman, his efforts have pleased TV viewers for years.

On Dauman's watch, Viacom has created and delivered many popular shows, including "iCarly," "Jersey Shore" and "SpongeBob SquarePants," on such networks as Nickelodeon, Comedy Central, MTV and VH1.

Viacom also delivered almost $1 billion dollars to shareholders in dividends and stock buybacks in 2011, says Zweig. This was a welcome change from recent history, when Viacom was spending extra cash on acquisitions that did not pan out instead of turning it over to shareholders says Michael Corty, a Morningstar analyst who follows the company.

In other words, shareholders are getting a significant amount of cash out of the company -- as is Dauman. That's a nice plot twist, even if Dauman still gets way more of his company's cash than most CEOs do -- despite his 50% pay cut.
Starbucks chief's $65 million is a lot of lattes
Featured: Howard Schultz, CEO, Starbucks

Originally published: Jan. 27, 2012

You might have heard that your Starbucks coffee is getting more expensive because of the rising price of beans. But there may be another reason: the big pay that the coffee giant scoops out to CEO and founder Howard Schultz.

All told, Schultz got $65 million last year. At, say, $3.25 for a tall latte, that's 20 million cups of joe. But the total is only one of several reasons the Starbucks (SBUX) chief is my latest "One-Percenter of the Week."

First, his triple-espresso pay puts him in an elite group of $50-million-plus CEOs. His basic pay alone, called "direct compensation," was nearly $16.4 million, 55% higher than the median S&P 500 ($INX) CEO pay of $10.6 million for 2010 (the latest year available) as calculated by Equilar, an executive compensation research firm. The rest includes $36.8 million from cashing out options, and a "retention bonus" of $12 million.

Second, that $12 million retention bonus is a mystery to me, for a number of reasons. Schultz founded Starbucks, and he has faithfully served as the company's chairman since 1985. He returned as CEO in 2008, when the company was struggling. He also has huge exposure to the company's stock, owning 30.6 million shares.

That's plenty of reason to stick around, and he's not about to run off and work for Green Mountain Coffee Roasters (GMCR). So paying him a retention bonus is like giving a New York Giants fan free tickets for the Super Bowl, then throwing in cash as an incentive to actually go to the game. Not needed.

Third, he's not exactly hurting for cash. According to the company, Schultz recently owned $117.4 million worth of vested stock options, and an additional $51.7 million worth of unvested options. "Vested" means that he is free to cash out the options. His company-paid home-security costs alone, at about $200,000, are around four times the typical household income in the U.S. But at least it is down from the $681,000 in home-security costs the company paid in 2009, points out ISS Proxy Advisory Services.

An outsized pay gap

Fourth, there's the vast pay gap between Schultz and the bulk of his employees. According to PayScale.com, which estimates industry pay levels, Starbucks baristas and food managers make $24,800 a year, on average, excluding any income from stock-options programs. This means Schultz makes more than 660 times as much as his baristas and other workers, a ratio well more than twice the typical CEO-to-worker pay imbalance.

Even assuming he worked 80-hour weeks and took only two weeks off, Schultz made $4,100 an hour, compared to a typical barista wage of probably around $12 an hour. "I wonder how Starbucks' baristas feel" about Schultz's pay, says Lisa Lindsley, who monitors CEO pay closely as director of capital strategies at the American Federation of State, County and Municipal Employees.

No doubt, he's done well

Now, to be fair: Schultz founded the company, and his return to the CEO slot seemed to turn it around, so he's created plenty of jobs for 99-percenters. The company employs about 200,000 people, and it added 3,700 net jobs last year, says Jim Olson, a Starbucks spokesman. The company plans to open at least 200 new stores in 2012 and redesign 1,700, which will create thousands of jobs, says Olson.

Starbucks also says the retention bonus for Schultz was a way to "recognize his leadership in the transformation of the company" and to ensure he continues to lead Starbucks "through the next phase of critical growth." Olson notes that 89% of Schultz's pay is linked to company performance, so his compensation is partly a reflection of how well he's done as a CEO and how much the stock has gone up as a result. Starbucks stock advanced about 45% last year, compared with flat returns for the S&P 500.

Those stock gains are due to solid performance. Most recently, total sales increased 16% to a record $3.4 billion in the fourth quarter, and sales at stores open more than a year were up an impressive 9%, on a 7% increase in traffic. Earnings were up 11%, in part because Starbucks didn't pass all of the bean-price increases to consumers, sharing a little of the pain with shareholders in the form of lower profit margins. And the company opened 241 new stores, net, reaching 500 stores in mainland China and Latin America.

Latin America brings us to another issue. Starbucks has come under criticism in the past for not buying "fair trade" coffee beans, or beans produced by groups that protect the environment and pay a reasonable wage. Starbucks' website says 84% of its beans are "fair trade" sourced.

But that begs the question of how big the pay gap is between Schultz and the people who pick his beans. "Even fair-trade coffee doesn't assure pickers get a living wage," says Karanja Gaçuça, a frequent spokesman for Occupy Wall Street and former Wall Street analyst. Gaçuça adds that the $12 million retention bonus alone "could go a long way to compensate those workers, instead of going into the bank account of a CEO."
LinkedIn CEO collects $25.7 million on disappointing IPO
Featured: Jeffrey Weiner, CEO, LinkedIn

Originally published: Jan. 13, 2012

Despite the big market advance since October -- the Nasdaq ($COMPX) is up 18% -- most investors who bought any of the high-profile 2011 Internet-based initial public offerings in early trading are still feeling some serious pain.

Shares of the most promising, like Groupon (GRPN), LinkedIn (LNKD) and Pandora Media (P), are down 33%, 32% and 44%, respectively, as of Jan. 13, from the midpoint values on the first day of trading.

But some folks made money in the social networking and Internet IPO game, and not surprisingly, they're one-percenters.

For example, anyone with a brokerage account, enough to get preferential treatment at the investment banks behind LinkedIn's IPO -- and almost by definition, one has to be affluent to have such an account -- made some decent profits. The special inside price for LinkedIn shares at the time of the IPO was $45. The stock opened at $83, and it now trades at around $69.

The hands-down winners in 2011 social networking and Internet IPOs so far, though, have been the top managers at LinkedIn -- including CEO Jeffrey Weiner.

We've seen a smattering of insider sales at Pandora. And Zynga's CEO made more than $1 billion (more on this in an ensuing slide), but on paper; most of it is still tied up in stock. When it comes to cashing in (or is it cashing out?), nothing quite matches the voluminous sales at LinkedIn.

CEO collected $25.7 million

LinkedIn chief Weiner sold $25.7 million worth of stock in late November and CFO Steven Sordello booked $6.7 million in sales. Three directors and the company's general counsel collectively sold $19 million worth, or anywhere from $2.7 million to $6.5 million apiece. Venture capital firms Greylock XI and Deer VI -- early LinkedIn investors -- sold out $84.8 million and $86.1 million, respectively, according to Thomson Reuters.

This kind of large, early selling by the CEO, other insiders and investors in a new public company raises eyebrows among investors. After all, if the stock has such great prospects, why wouldn't they hold it? "It's not a good thing," says Scott Stevens, of Strata Capital in Beverly Hills, Calif., who has been short LinkedIn stock.

But it's been great for LinkedIn insiders. At a time when hardly anyone has booked profits in any of the much-ballyhooed 2011 IPOs, Weiner, Sordello and four other top managers at LinkedIn have realized multimillion-dollar gains. And there's probably more to come. The company's next lockup release -- the end of a company-imposed restriction on insider selling -- happens in mid-February. At that time, insiders will be free to sell 55 million more shares, or well more than twice the amount they were allowed to sell in late November. (So look for a possible dip in the stock on Valentine's Day, when the lockup release happens, or shortly thereafter.)

All of this explains why I'm making Weiner my latest "One-Percenter of the Week," as a representative of the group. As insiders, they managed to book the big profits that have been so elusive for just about everyone else -- by selling a stock they helped promote as a great buy.

An overpriced stock?

LinkedIn declined to comment. But in fairness to the company, it reported a powerful 126% jump in revenue for the third quarter to $139.5 million, beating consensus estimates. And the number of LinkedIn members rose 63% year-over-year, to 131 million. Analysts have a consensus 12-month price target of $85 on the stock, according to Thomson Reuters, or around 19% above recent levels.

So why have insiders been selling? They won't say. But by many measures, this stock simply looks overvalued. It carries a price-to-sales ratio of 15, compared with 5.7 at Google (GOOG), one of the most successful Internet-based companies ever. At $69 a share, LinkedIn might be an example of a "good company, bad stock." At least that's what the huge insider sales here suggest.
In Congress, nearly half are millionaires
Featured: Congress

Originally published: Jan. 5, 2012

Just a few days into the new year, and we're already blitzed with wall-to-wall election coverage. But the fun is only just beginning. Before this election year is out, scores of congressional candidates will join the presidential contenders already dominating the airwaves.

If you observe their endless debates and expensive attack ads and get a sense that these candidates are out of touch with many of the pedestrian problems faced by the rest of us -- oh, say like trying to balance a family budget -- it's not just your imagination.

While most Americans saw their incomes and wealth slip in the past several years, the wealth of our reps in Washington, D.C., has grown by leaps and bounds. The key takeaway here: Being a millionaire would make any normal person a one-percenter, a member of the nation's wealthiest group. In Congress, it makes you just average.

So rather than a CEO this week -- we'll get back to them -- I'm making Congress my "One-Percenter of the Week."

Consider these numbers:

Nearly half of the members of Congress are millionaires, according to the Center for Responsive Politics, a Washington watchdog.
The median net worth of a U.S. senator was $2.63 million in 2010, the most recent year for which financial data are available. That was up 11% from the year before, says CRP.
The median estimated net worth for House members was $756,765.
The median net worth of House members almost tripled from 1984 and 2009, while the net worth of Americans declined slightly during the same time, according to the Washington Post and the University of Michigan.

"It's no surprise that so many people grumble about lawmakers being out of touch," said Sheila Krumholz, CRP executive director. And it's not only the news of their costly yachts and expensive vacations that rankles.

It's also the sense that our One-Percenter reps in Washington aren't doing enough to help the rest of us, perhaps because they are so distracted by their embarrassingly rancorous bipartisan arguing -- which has earned them their most unfavorable ratings in years.

Bickering over the budget last summer, for example, brought the threat of a U.S. credit rating downgrade, helping to shave billions off our stock holdings in just a few painful weeks.

A recent Congressional Budget Office study found that public policy efforts -- in the tax code and through programs like Medicaid -- now do less to combat income inequality than they did in 1979.

And three years after the worst financial meltdown in decades -- which many blame on lax oversight of the financial sector by Washington -- our economy is improving, but not fast enough to provide jobs for the millions who are unemployed.

It's not hard, either, to suggest a little bias toward the 1%, and a bipartisan one. For all the talk about rescinding the portions of the Bush tax cuts that apply to the highest income brackets, they survived two years with a Democratic president and Democratic majority in both houses of Congress as well as the current, divided Congress. And late in 2011, House Republicans took lots of criticism for stalling on a 2% payroll tax that by its nature helped those in the lower brackets more than the 1%.

So who's richest in Congress?

Rep. Darrell Issa, R-Calif., tops the CRP list as the wealthiest of the lot, with an estimated 2010 net worth of $448 million. He's followed by Rep. Michael McCaul, R-Texas, with an estimated net worth of $380 million. (For a look at a list from Roll Call and CNBC, read "The 15 richest members of Congress.")

Just how did these reps get so wealthy? Probably not on the $174,000 they make a year, despite the juicy perks like extra pay for senior posts and generous medical and pension benefits. Most likely, they're so much richer than the rest of us because politics -- with its expensive campaigns -- naturally attracts wealthy people. Many of them made their riches in real estate, or they got their wealth through inheritances or marriage.

But shrewd stock picking also clearly helps. Studies by Alan Ziobrowski at Georgia State University conclude that our reps regularly outperform the markets by large amounts due to the "significant information advantage" they derive from their jobs.

Our reps may actually be a lot wealthier than the numbers provided by CRP suggest, since so much of their wealth goes unreported. The top bracket for assets of spouses is "more than $1 million," which means that family net worth is likely undervalued in many cases. Plus their annual filings exclude the value of government retirement accounts, primary residences and personal property not held for investment -- like artwork and cars.
Zynga chief's $1 billion-plus payday
Featured: Mark Pincus, CEO, Zynga

Originally published: Dec. 21, 2011

To get a leg up in the popular social-networking game "Farmville" on Facebook, hard-core players buy virtual coins so their avatars can purchase virtual farm equipment.

But there's nothing virtual about the huge amounts of wealth being amassed by the inventors of popular online games.

Take Mark Pincus, the CEO of Zynga (ZNGA), the company behind "Farmville" and big online gaming hits like "CityVille," "Mafia Wars" and "Words With Friends." When Zynga shares went public last week, the world got to see just how astonishingly lucrative the fantasy world of social networking games can be.

At the opening price of $10 a share, Pincus was up a cool $1.2 billion for his efforts in founding Zynga in 2007 and nurturing it into a company that will take in $1 billion in revenue this year. For the sheer size of this payday, and what it says about incomes in the U.S.A., I'm making him my "One-Percenter of the Week".

An edge on the sale

Pincus owns 112.2 million shares of Zynga, or about 16% of the company, and he has 7.2 million options, most of which have an exercise price of 17 cents, according to filings. So even after the shares slipped to $9.25 this week -- leaving everyday investors who bought the first day at $10 to $11.50 a share in the red -- Pincus' stake was still worth more than $1 billion.

The hit to his wealth might have been worse. But earlier this year, in a move that raised eyebrows in the IPO world, Pincus hedged his bets by cashing out a sizable stake in the company before it came public, at a time when other Zynga employees were blocked from doing so.

In March, he pocketed more than $109 million when he sold 7.8 million shares back to Zynga at nearly $14 per share, 40% more than the IPO price of $10. In fairness, while Zynga blocked other employees from selling in March when fervor for the IPO was pitched, hundreds of employees have been allowed to sell tens of millions of shares at prices ranging from 25 cents to $17 a share.

Tribute to the pay gap

Now, I don't begrudge anyone who gets paid well for founding a successful company. Entrepreneurship is part of the lifeblood of our economy. Zynga employs 2,800 people, and it's already profitable. It is the world's leading social game developer, with 152 million users in 175 countries. About 54 million people play Zynga games each day.

But Pincus' $1 billion in earnings for creating a game company that runs on virtual money clearly underscores the widening gap in reward between those at the top and the rest of working Americans. So it's tough to let him off because "this is how the game works." It's precisely because this is how the game works that so many people are ticked off about widening pay disparities, and so many academics are concerned about the damage it does to our social fabric. The last thing we need is a huge underclass of people who give up because they sense the game is fixed.

Over the past few decades, the CEO-worker pay gap has widened to about 350-to-1, from around 40 in the 1980s. And research by Emmanuel Saez of the University of California, Berkeley shows that between 1993 and 2008, the top 1% of families raked in more than half the gains in overall income.

Pincus' huge payday exemplifies this trend. I'm pretty sure the entrepreneurs who came up with Monopoly, one of the most popular games ever, never even dared to dream they could make the inflation-adjusted equivalent of $1 billion off the game in the first three years, let alone in their entire lifetimes.

Besides, a billion-dollar payday still seems a little outrageous at a time when so many people are unemployed -- including, most likely, many "Farmville" fans who have plenty of time to play the game because they're out of work.

While many people struggle to pay their mortgages or lose their homes in foreclosure, Pincus has two houses on the market in San Francisco -- one at $8.1 million and the other at $2.2 million, according to The Wall Street Journal.

His newly minted $1.1 billion in Zynga wealth is one-seventh of the entire worldwide market for fantasy game virtual goods, which is worth around $7.3 billion, according to In-Stat, a market research firm.

So, for the way his IPO payday underscores the vast and growing pay inequity in our country, and for the sheer remarkable size of his score, I'm making Pincus a "One-Percenter of the Week."
Highest-paid CEO collected $145.3 million in a year
Featured: John Hammergren, CEO, McKesson

Originally published: Dec. 16, 2011

At a time when many Americans had to make do with less as companies chopped jobs and pay, last year was bonanza time for the nation's CEOs, according to a new study that says CEO take-home pay jumped 36%.

But even among the privileged CEO class, one top earner stands out. For leading the newest list of highest-paid CEOs with a paycheck that was a whopping 47% above the No. 2 earner, I'm making John Hammergren, the CEO of McKesson (MCK), my third "One-Percenter of the Week."

Hammergren leads a list of the highest-paid CEOs just published by GMI, an independent corporate governance research firm, because he took home a cool $145.3 million last year. Joel Gemunder of Omnicare (OCR), No. 2 on the list, earned a paltry $98.3 million.

That gap certainly makes Hammergren the king of the CEO hill. But it's nothing like the pay gap between CEOs and regular workers. The 36% jump in CEO pay last year, put median pay for S&P 500 CEOs at $8.9 million. In contrast, median annual household pay for Americans actually fell 2.2% last year to $49,445, according to the government.

And Occupy Wall Street shouldn't worry about the widening gap between the rich and everyone else?

Here's how Hammergren took home so much:

Much of the increase in overall CEO pay last year was due to an options frenzy as CEOs cashed out in a strong stock market rally, and Hammergren was no exception. He banked profits of more than $112 million in 2010 as he exercised 3.3 million stock options.
The value of his retirement benefits rose $13.5 million to more than $83 million.
His base salary of $1.7 million was in the top 10% for the S&P 500.
He also got a parade of perks worth $1 million. This included $122,000 for home security and monitoring services, $100,500 worth of use of the company aircraft for personal flights, $9,000 for the cost of a personal driver and car, and $16,935 worth of help with his taxes. His perks included $729,000 in company matching contributions to a retirement plan.

Hammergren's biggest payout may lie ahead. In a takeover scenario for McKesson, Hammergren would be due $469 million, including a $141 million in severance pay, a pension worth $124 million, $90 million in accelerated stock vesting, and a tax gross-up of more than $77 million, according to the report written by GMI's Paul Hodgson.

Falling pay for most households

For a little perspective, the average annual U.S. household income, at $49,445, has fallen so much in the past several years that families now have to make do with the same amount they earned back in 1996, adjusting for inflation. And last year, 2.6 million more people slipped into poverty, increasing the poverty rate to 15.1%, from 14.3% in 2009, according to the Census Bureau.

But in the corner offices in 2010, CEOs were enjoying ever more lavish perks, like private use of company jets, personal chauffeurs and elaborate home-security systems (to guard against their properties being occupied by 99-percenters, perhaps?). Home security systems for CEOs, paid for by shareholders, sometimes run as high as $100,000, more than twice what a typical American family makes in a year. Overall, perks given to CEOs at S&P 500 companies rose 11% last year, according to the GMI report.

McKesson declined to comment. But in Hammergren's defense, the company's stock is up more than 117% in the 10 years since Hammergren became CEO. In contrast, the S&P 500 is about flat in in the same period. In filings, the company points out that earnings at McKesson have grown much faster than earnings at S&P 500 companies, and sales rose steadily on Hammergren's watch -- despite the financial crisis. Revenue grew to $112.1 billion in 2011 from $93 billion in 2007.

Still, $145.3 million is a doozy of an annual pay package, at a time when so many people have to do with so much less. And as companies pinch pennies on worker pay, is any CEO really worth nearly half again as much as any other CEO?

So, for earning 47% more than the second-highest-paid CEO -- and about 3,000 times the amount earned by the typical American household -- I have no qualms about making Hammergren my One-Percenter of the Week.
UnitedHealth CEO cashes in on biggest pay gap
Featured: Stephen Hemsley, CEO, UnitedHealth Group

Originally published: Dec. 9, 2011

One message from Occupy Wall Street that has resonated around the country is that a growing gap between the rich and everyone else is a threat to our nation's economic future.

You may disagree with the conclusion, but it's hard to disagree with the premise. A lot of academic work, including research by Emmanuel Saez of the University of California, Berkeley, supports it. And the growing gap is shaping things like retail spending patterns, which show booming sales at high-end retailers, stagnant sales at mass-market stores and booming sales again at the dollar stores at the very low end.

In a study released in late 2011, the compensation research group PayScale identified the Fortune 50 companies with the widest pay gaps -- the biggest disparities between the top manager's pay and workers' median pay.

The top spot went to UnitedHealth Group (UNH), the health insurance company led by CEO Stephen Hemsley.

Hemsley made 1,737 times the median pay earned by workers at his company in 2009, according to PayScale's study. That compares to an overall CEO-to-regular-worker pay ratio of 287 that year, according to the Institute for Policy Studies, a think tank that studies trends in worker pay. It was more than twice the disparity at the No. 2 company on the list, Wal-Mart Stores (WMT), which had a ratio of 717.

Hemsley topped PayScale's list of CEO-to-worker pay disparities at Fortune 50 companies by pocketing $101 million, according to Forbes, whose CEO numbers PayScale used in its study. In contrast, UnitedHealth workers earned a median pay of $58,700, according to PayScale.

PayScale estimated median employee pay levels in various jobs and sectors by using total cash compensation, including bonuses, reported by people responding in online surveys. PayScale's pay estimates for workers are based on 23 million survey responses since 2002.

PayScale used 2009 pay data for Hemsley in its study, because that's what Forbes used for its latest pay roundup.

But Hemsley's realized pay for 2010 was robust as well, at $48.8 million, according to GMI, an independent provider of corporate governance research. That would work out to a CEO pay ratio of 831 -- and still top the PayScale list.

A UnitedHealth spokesman responds that Hemsley's pay was so high in 2009 because he cashed out a lot of stock options he had held for years, and which were due to expire. This is true. Forbes reports that $98.5 million in Hemsley's pay was from stock gains.

UnitedHealth also responds that Hemsley was able to earn so much on stock options because the company and its stock have performed well, due in part to Hemsley's efforts. He joined the company in 1997 and served as president and then chief operating officer through most of 2006, when he became CEO. Indeed, UnitedHealth stock has more than doubled in the past 10 years -- but after trading above $60 in 2005, shares today are trading below $49.

While $101 million is a lot to earn in any year, it's the gap between Hemsley and his workers that stands out. It comes at a time when the overall pay gap is widening in our economy, when household income gains are so meager that median household pay last year returned to levels not seen since 1990s, adjusted for inflation.

For earning so much compared with those who work for him, I'm making UnitedHealth's Stephen Hemsley my second "One-Percenter of the Week."
CEO sheds title, collects $100 million
Featured: Eugene Isenberg, CEO, Nabors Industries

Originally published: Nov. 30, 2011

The tax-and-budget debate in Washington and the Occupy Wall Street protests have put new light on an old issue: the growing gap between the rich and everyone else.

I've been writing for years about a select slice of the top 1%, those CEOs and top executives whose lavish pay and perks annoy watchdogs, shareholder advocates and big investors like pension funds. But despite their complaints, we never seem to run out of examples of executive privilege.

Take the simple act of getting around. Now that camping has been banned at New York's Zuccotti Park, Occupy Wall Streeters have to ride in to the protests using the transportation of the 99%-ers -- subways, buses, cars and the ol' shoe leather express. One-percenters prefer limos and corporate jet.

One of my favorite examples of corporate jet overuse is Eugene Isenberg, the chairman of Nabors Industries (NBR), an energy-services company. He stands out for a couple of reasons.

A $100 million salute

First, Isenberg makes a lot of money; he could easily afford a first-class ticket on a commercial flight, and buy the seat next to him for extra comfort. He could at least reimburse the company when he uses the corporate jet for personal travel, sparing shareholders the expense. That's because the company reported $71.9 million in compensation for him in 2008, $23.2 million in 2009, and $13.5 million in 2010.

And here's the juiciest part: When he gave up the CEO slot recently, he got a nice parting gift -- a cool $100 million. And it's not even goodbye; he's staying on as chairman. He just has one less job,

The company has long argued that he deserves this cash because he rescued the company from bankruptcy in 1987. That may be true, but the company's stock is down 40% in the past five years. The latest payment led a columnist in Houston, where Nabors is based, to label Isenberg his city's "most overpaid executive."

Flying high

Second, despite his vast wealth, Isenberg has apparently taken frequent personal flights on the corporate jet to his homes, all paid for by shareholders, according to a study by The Wall Street Journal. What's worse, the company has not disclosed these trips to shareholders.

In a study using flight records published in June, the Journal reported that Nabors' jets made frequent stops in Palm Beach, Fla., and Martha's Vineyard, Mass., where Isenberg has homes. The Journal estimated the flights cost about $704,000 -- enough to be disclosed publicly. But Nabors did not disclose an amount for the cost of aircraft perks for Isenberg in 2009 or 2010.

In June, a Nabors spokesman told the Journal that the company "complies with all IRS guidelines and SEC disclosure requirements with respect to the use of company aircraft by its executive officers." And under his contract, Isenberg is allowed to set up home offices at the company's expense. So that may be a rationale for the flights: Technically, he might have been making business trips between corporate offices, two of which happen to be in or near his homes.

Nabors declined an opportunity to tell me more about these flights. But we may soon be learning more about them. The company recently said the Securities and Exchange Commission is investigating executive perks, including personal flights on company jets.

Meanwhile, for collecting all these big checks and still, apparently, finding a way to get shareholders to pay for his flights to and from home, I'm making Isenberg my first "One-Percenter of the Week."

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