Stock and options pump up CEO pay; Sprint's Dan Hesse tops the list

 

05/07/2014 7:26 AM

06/24/2014 10:26 AM

Stock and option awards and a healthy stock market continued in 2013 to enrich executive pay for many Star 40 executives.

 

Just two years ago, $1 million in total compensation was the line separating the top half of the Star 40 chief executive officers from the lesser-paid CEOs on the list. Stock market growth has pushed that midpoint to $2 million.

This past year, 23 Star 40 CEOs were awarded $2 million or more, with stock and options accounting for the greatest share of compensation. That reflects continuing pay-for-performance efforts to align executive pay more closely with company performance and shareholders’ interests. Salary is a relatively small part of the pay package for the more richly compensated executives.

As fits the company size, Sprint Corp. once again was the pay giant, granting CEO Daniel Hesse a 2013 pay package worth more than $49 million, with $34 million of the total listed in stock and options awards. He also was the base salary leader at $1.2 million.

But that doesn’t mean Hesse “took home” that amount, as reported in the company proxy. A slightly more realistic reflection of the compensation value Hesse realized last year comes from his exercised stock options or the vesting of previously restricted shares in his name.

For Hesse that amount, solely in vested shares, was $4.3 million. That tally, though, doesn’t indicate whether he sold the shares and pocketed cash, or whether he held onto the shares to weather whatever ups and downs might occur.

For most top executive pay packages, unlike boxes filled in on employees’ W-2 forms, there isn’t a simple number to show take-home pay in a given year. The value they finally realize will depend on their stock’s sale price if and when they sell it after their ownership is vested.

Many executives realize big paydays when they use their previously granted stock options to buy shares at below the prevailing stock market price. Many also realize value gains on vesting days when they get personal control of previously restricted shares.

The search for realized value among the Star 40 CEOs shows that, even more than Hesse, EPIQ Systems CEO Tom W. Olofson realized more value — nearly $5.3 million — in vested shares and exercised options.

DST’s Stephen Hooley, Sprint AeroSystem’s Jeffrey Turner and Waddell & Reed’s Hank Herrmann each realized more than $3 million in value last year from vested shares.

Vested shares or exercised options also produced handsome values — more than $2 million each — for CEOs David Haffner at Leggett & Platt; David Brain at EPR Properties; David Starling at Kansas City Southern; and James Welch at YRC Worldwide.

The multimillion-dollar pay values accrued to more than just CEOs. Eighteen other “C-suite” executives (such as chief financial officers and chief operating officers) each had more than $2 million in value realized last year from exercised options, vested shares, or both. Twelve more each realized more than $1 million in such values.

Among the publicly traded Kansas City area companies, several executives each at Cerner, Sprint, Waddell & Reed and DST realized at least $2 million each in stock and options.

 Three Cerner executives topped that calculation of value realized from exercised options and vested shares. They were Jeffrey Townsend, with nearly $12.7 million in value realized; Michael Nill, with $7.8 million; and Marc Naughton, with nearly $6.9 million.

As for the CEOs — and as in past years — there was wide variation in Star 40 CEO compensation. At least one-fourth of the Star 40 CEOs received no stock or option awards in their 2013 pay packages.

Seaboard, for example, followed its previous compensation pattern and reported that CEO Steven Bresky’s pay package included $890,000 in salary, $1.1 million in bonus, and $203,000 in “other” compensation, but nothing in stock and option awards.

Base salaries for the Star 40 CEOs who had no stock and option awards ranged from about half a million dollars down to just about $165,000. But even the relatively lowest salaries were bolstered in almost every company by bonus pay, non-equity or “other” compensation.

WALL STREET PAYDAY

Many area executives realized large gains last year from previously granted stock and options awards.

ExecutiveTitleCompanyValue realized
Jeffrey A. TownsendChief of StaffCerner Corp.$12,668,950
Michael R. NillChief Operating OfficerCerner Corp.$7,829,621
Marc G. NaughtonChief Financial OfficerCerner Corp.$6,889,876
Robert L. JohnsonPresident RetailSprint Corp.$6,762,395
Michael L. AveryPresidentWaddell & Reed Financial Inc.$5,535,395
Paget L. AlvesFormer Chief Sales OfficerSprint Corp.$5,444,798
Tom W. OlofsonCEOEPIQ Systems Inc.$5,271,375
Christopher E. OlofsonPresidentEPIQ Systems Inc.$5,250,525
Thomas W. ButchChief Marketing OfficerWaddell & Reed Financial Inc.$4,971,065
Daniel R. HessePresident and CEOSprint Corp.$4,332,951
Philip J. SandersChief Investment OfficerWaddell & Reed Financial Inc.$4,289,210
Stephen C. HooleyPresident and CEODST Systems Inc.$4,143,216
Ted F. WiseExecutive Vice President ExpansionO'Reilly Automotive Inc.$4,018,050
Jeffrey L. TurnerFormer President and CEOSpirit AeroSystems Holdings Inc.$3,477,906
Henry J. HerrmannCEOWaddell & Reed Financial Inc.$3,473,110
Steven J. TowleExecutive Vice PresidentDST Systems Inc.$3,362,877
Zane M. BurkePresidentCerner Corp.$3,151,487
Daniel P. ConnealyChief Financial OfficerWaddell & Reed Financial Inc.$3,002,879

The values realized came from using stock options to buy shares at below-market prices and from gaining full control of previously restricted shares granted by the company.

Source: company proxy statements

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