Paying up: Hiring a new CEO from outside can be pricey
By Patrick Kennedy, Adam Belz and Kavita Kumar, Star Tribune (Minneapolis) | |
McClatchy-Tribune Information Services |
In recent years, shareholders have grown more agitated over the big compensation packages that CEOs of giant companies typically receive. Target itself nearly lost a say-on-pay vote last year, with only 52 percent of shareholders backing its policies.
But to attract the right person, analysts think Target may well have to offer its next leader an even better package than ousted CEO
"When you have to do a turnaround, or you have a company that has issues, it can be more expensive to bring in a new CEO," said
Overall, CEO pay dropped in 2013 in
But companies that bring in new leadership to address challenging situations face pressure to get the best talent in place. Often that talent comes from outside, and it costs a premium.
In order to lure
Internal CEO hires aren't usually able to demand the same premium. Steinhafel, a Target veteran who lost his job as CEO this spring, was hired from within and earned a total of
The same was true at
But even with executive pay under scrutiny amid a larger discussion of inequality, a new CEO plucked from outside a company can demand a more generous pay package.
"It's expensive because you're looking for the very best. They're probably working for someone else, they're high-profile, and they already have a really good pay package," said
Outside candidates, particularly the small pool of people qualified to take over a Fortune 500 company, must leave behind stock options, restricted stock and other deferred compensation when they switch jobs, Lindner said. The hiring firm must replace what the candidate would lose by making the leap, offer a competitive salary and, when the company is struggling, reward the new CEO for taking on the risks of a fix-it job.
"You may also have to provide something, maybe a mega-grant long-term to make it very worthwhile if it gets turned around," said Lindner, referring to companies in general. "There's kind of a risk premium."
Smaller companies face the same issue on a different scale.
In
"They've had some recent hiccups, but they're definitely fixable," he said.
Target launched a search for a new CEO is early May after it ousted Steinhafel. It has not put a timetable on finding a new leader and has said it is looking inside and outside the company. The firm
An added challenge for Target in finding a new CEO is the fact that other retailers such as
"There's definitely competition out there," Yarbrough added. "That being said, I think Target is a pretty coveted job."
In the past year, Target has retooled its executive compensation plan, linking it more closely to performance, after shareholders objected to Steinhafel's high level of pay compared with his peers, especially given
Say on Pay
In early July, a group of normally quiet institutional investors including Vanguard,
"The heart of that is the desire to have a real conversation about executive pay, which just seems to keep growing, regardless overall of real performance," said Sale, the
But shareholders have demonstrated that they will support expensive CEOs who are effective.
Even though a major theme of economic discussion in 2014 has been inequality, thanks in part to Thomas Piketty's much-discussed "Capital in the 21st Century," shareholders are not primarily champions of social justice, said
"They want the right person," said Ella, speaking of shareholders in general. "They're not super-concerned with whether they get a
While shareholder engagement has become a priority for many boards, they will not push for executives to be paid less unless the company fails to perform, he said.
"Piketty has struck a nerve, and I think that inequality is something that people are paying attention to," Ella said. "But I don't think it's going to go away."
Top of the list
For the second consecutive year, the highest-paid CEO in our survey is
Payday highlights
Highest salary: This one is a three-way tie, with former Target Corp. CEO
Lowest salary:
Largest bonus: Cracchiolo once again fetched the largest bonus at
Smallest bonus:
Biggest gain from stock options: Cracchiolo exercised
Stock options represented the single biggest slice of CEO compensation in 2013, accounting for
Largest gains from vesting of restricted stock: Hemsley of
Forty-eight executives got gains from the vesting of restricted stock awards, compared with 51 a year ago.
Overall, gains from exercised stock options among the Minnesota CEOs rose slightly to
Female CEOs
Six female CEOs made the 2013 list, the same as last year.
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