Star 40

Star 40: Wealth soared in 2012 for KC companies' executives

Updated: 2013-05-15T03:26:37Z

By DIANE STAFFORD and MARK DAVIS

The Kansas City Star

Many top executives in the Kansas City region’s public companies gained multi-million-dollar wealth last year.

The 2012 fiscal year was, said Mercer compensation expert Spencer Fields, a “perfect storm” to plump up executive pay.

One force was the pay-for-performance trend, born of pay regulations designed to align executive rewards with shareholder interests. That force has pushed dollars from straight pay to bonus pay and stock options.

Then came sterling stock market growth in 2012. As a result, the value of the executives’ stock and option compensation mushroomed along with their companies’ stock prices.

Many executives realized big gains last year by using previously granted stock options to buy shares at below the prevailing stock market price. Many realized gains on their vesting days — the dates they obtained personal control of previously restricted shares granted to them by the company.

To better show just how generous their 2012 total wealth accumulation was, Star 40 this year added a second “Wall Street Payday” executive compensation chart, on this page.

The new chart digs into the corporate proxy reports to show the combined snapshot values of all their share gains, through both stock and options awards previously granted by the companies. And it wasn’t just chief executives who raked in these rewards.

The top five officers at O’Reilly Automotive Inc., for example, realized more than $27 million in value from shares they collected through previous restricted stock grants and stock option awards. Chairman David O’Reilly accumulated about $12.9 million of that total, easily the biggest gain among Star 40 companies’ executive ranks.

Last year, 42 executives in the Star 40 companies each gained at least $1 million worth of stock through these prior awards, corporate reports show.

It’s important to note that the new “realized values” chart is just one measure of wealth accumulation. It doesn’t say whether the executives sold their shares and pocketed cash or continue to hold the stock and ride their companies’ share prices up or down.

In other words, for executive pay, there isn’t an annual take-home pay number printed in a box like on most workers’ annual Form W2s. But that’s where the traditional Star 40 CEO compensation chart has tried to come close.

The Star 40 CEO pay tally – the larger chart on the next page that includes most of the Star 40 CEOs — tells what the companies listed on their corporate books as their compensation expenses at the time the restricted stock and stock option grants were made to their CEOs. That’s different from the values the executives eventually realized, which is the value the smaller chart on this page shows for some.

The big chart shows that million-dollar base salaries – as paid to Cerner Corp. CEO Neal Patterson and Waddell & Reed Financial CEO Hank Herrmann – are only the beginning.

For most of the bigger-company CEOs, stock awards, options and “non-equity incentive” compensation dwarf their base pay. Column after column are filled with multi-million-dollar numbers.

For some, like H&R Block CEO William C. Cobb, about $9 million in stock and options awards far outclassed his $951,200 base salary and more than $1.7 million in bonus and incentive pay. That kind of compensation structure is consistent with the pay-for-performance intent to link executive pay with corporate performance. Cobb may or may not collect that $9 million in the future; it depends on what happens to the value of Block stock.

For others, such as CEOs Daniel Hesse at Sprint Nextel and Herrmann at Waddell & Reed, and former CEO Thomas McDonnell at DST Systems, multi-million-dollar numbers appear as “non-equity incentive” pay. Non-equity incentives can be figured differently by different companies, but basically they’re a bonus tied to performance.

Seaboard Corp. classified Steven Bresky’s $1.2 million added pay solely in the “bonus” column. Spirit AeroSystems Holdings divided Jeffrey Turner’s performance-based pay into both the bonus and non-equity incentive columns.

Other items of note:

• Some longtime Star 40 executives besides David O’Reilly were big payday winners last year because of previous stock and option awards. McDonnell, who retired from DST, and Michael Haverty, executive chairman of Kansas City Southern, benefited handsomely by such gains. McDonnell’s gain was nearly $9 million, and Haverty’s more than $7 million.

• Other Star 40 CEOs who each realized more than $3 million in stock gains last year were Patterson at Cerner, Greg Henslee at O’Reilly, Angelo Brisimitzakis, who retired as Compass Minerals International CEO during the year, David Brain at EPR Properties, David Haffner at Leggett & Platt, Hesse at Sprint, and Turner at Spirit AeroSystems, who also has retired.

• It wasn’t just CEOs who benefited. Thanks to vesting, other $3 million-plus wealth accumulation reported by Star 40 companies went to Thomas McFall, chief financial officer at O’Reilly, to Philip J. Sanders, chief investment officer at Waddell & Reed, and to Marc Naughton, Michael Nill and Zane Burke, other top-five executives at Cerner.

• David O’Reilly was by far the biggest wealth accumulator among Star 40 executives last year, but because he is chairman he isn’t on the CEO pay chart. On the CEO 2012 pay chart, Cobb, at H&R Block, topped the list.

• Look for at least six new Star 40 CEOs in 2013. Clifton Pemble has succeeded Min Kao at Garmin Ltd.; Steve Hooley has followed McDonnell at DST; Fran Malecha now has the job at Compass Minerals, Terry Bassham is CEO at Great Plains Energy, Larry A. Lawson heads Spirit AeroSystems, and Paul L. Thomas recently became CEO of NASB Financial Inc.

• Kao, who co-founded Garmin and whose wealth is estimated at well over $2 billion because of his Garmin stock, announced his retirement in December. His reported 2012 pay? Less than $600,000.

To reach Diane Stafford, call 816-234-4359 or send email to stafford@kcstar.com. To reach Mark Davis, call 816-234-4372 or send email to mdavis@kcstar.com.

Deal Saver Subscribe today!

Comments

The Kansas City Star is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere on the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

The Kansas City Star uses Facebook's commenting system. You need to log in with a Facebook account in order to comment. If you have questions about commenting with your Facebook account, click here