You have to hand it to Goldman Sachs—they’ve mastered making money the “old fashioned way” as well as through innovative new approaches. Meanwhile, many traditional corporations continue to offer a contrasting perspective on the much-maligned topic of CEO pay. A prime example, with a personal twist for shareholders since 2005, is Heinz Chairman, President, and CEO W.R. Johnson.
A Well-Oiled Consumer Machine
Heinz has evolved into a finely tuned consumer products powerhouse, a transformation driven in part by the oversight of external investors. One notable figure is hedge fund trader Nelson Peltz, who not only sits on the company’s board but also led a significant shake-up a few years back. This leadership has helped Heinz maintain steady revenue growth and record small, yet consistent, increases in net income—even during a global consumer recession.
The Murkier Side of CEO Pay
The discussion becomes more complex once CEO compensation comes into focus. A closer look at Heinz’s annual proxy statement reveals that the board increased the CEO’s total compensation by $10 million between 2007 and 2008. While base salary and bonus amounts saw modest rises, the significant jump came from deferred and long-term performance awards—a new compensation category introduced in 2008. In 2007, the total CEO compensation was nearly $15 million; by 2009, that figure had surged to approximately $24.4 million.
This large increase raises several questions. For one, is W.R. Johnson being valued at more than a 5:1 ratio compared to the next highest ranking executive? With the CFO earning just over $4 million annually, the substantial pay imbalance might undercut Heinz’s 2009 corporate goal of “making talent an advantage” in the executive suite, potentially making it harder to recruit top-notch performers.
Peer Performance and Survival Incentives
Supporters of high pay packages often speak of “peer-to-peer performance,” yet such arguments tend to elevate CEOs into an exclusive class that is often less involved in the company’s day-to-day operations than other senior officers. Adding another layer of complexity is the impact of the Great Recession. If a CEO of a major company manages to steer an operation without incurring losses, should mere survival justify a significant bump in compensation? Is avoiding losses now being viewed as a success metric in its own right?
It wouldn’t be surprising if boards and CEOs soon begin debating performance clauses with a Darwinian twist. In Heinz’s case, one might ask: if you can’t sell more ketchup under current market conditions, when will that change?
The Road Ahead
It seems that every day brings new proposals for pay incentive rules. One can only hope that these evolving measures will address and correct the imbalances exemplified by Heinz’s current compensation structure, rather than exacerbating them further.