Those are the main findings of Buyouts‘s annual look at executive compensation of CEOs, CFOs and COOs working at 10 of the largest companies acquired by LBO shops in 2006. Because these companies issued publicly-traded debt, they report the earnings of their highest-paid managers in period financial statements filed with the Securities and Exchange Commission (see accompanying table for details).
All told, CEOs in our sample saw their median total compensation fall almost 27 percent in 2008, to $5.2 million from $7.0 million in 2007, on average. Meanwhile, CFOs and COOs both took an average hit of 31 percent to their respective median total incomes last year, notching them down to $1.8 million and $3.3 million, respectively.
Executive suffering was perhaps best illustrated at
Perhaps not surprisingly, given falling stock valuations, the average percentage of income tied to company performance—which includes stock and option awards and other non-equity incentives, excluding annual bonus—fell across all three titles. To better align interests, general partners traditionally like to keep executive compensation at their portfolio companies tied tightly to performance.
Indeed, among the three highest paid executives that served in their respective posts for all of 2008, all saw year-over-year declines in the amount of their compensation tied to company performance, while two of them also saw reductions in the amount of total compensation earned for the year.
Jeff Clarke, the CEO of travel services company Travelport Ltd., is one such executive. Clarke was recruited to his role in September 2006 by The
David Calhoun is another notable buyout-backed chief executive that saw a decline in total compensation, while his percentage of performance-based pay also declined. Calhoun took his post at the helm of Nielsen Co., a media services provider, in September 2006, following the company’s $9.7 billion buyout by a group including Blackstone Group, The
While 2008 revenue at Nielsen rose slightly to $5.0 billion from the previous year’s $4.7 billion, “covenant” EBITDA at the company remained flat at $1.3 billion. Calhoun’s total compensation, meanwhile, fell by 46 percent in 2008 to about $9.7 million, down from roughly $18 million the year before. The percentage of his pay tied to performance also fell last year, to 61 percent from 80 percent in 2007.
Elsewhere, Jack Bovender, CEO of hospital operator HCA Inc. actually saw a meaningful boost in total compensation to $12.1 million from the prior year’s $6.9 million, while the percentage of his pay tied to performance dropped to 54 percent in 2008, down from 73 percent the year before. HCA Inc was acquired in November 2006 in a $32.1 billion deal led by
Turnover hit the CEO ranks of three companies in our sample in 2008.
Among those who left was Michel Mayer, who stepped down as CEO of semiconductor company Freescale Semiconductor Inc. Mayer, who was our sample’s second-highest paid executive in 2007, announced his departure from the company in February 2008, just 15 months after Freescale was acquired by Blackstone Group, Carlyle Group,
Net sales at Freescale Semiconductor for 2008 declined to $5.2 billion from $5.7 billion the year before, while adjusted EBITDA came in at $1.4 billion, approximately $100 million less than 2007’s count.
Mayer’s replacement at Freescale Semiconductor is Richard Beyer, previously CEO at Intersil Corp., a publicly-traded designer and manufacturer of high performance analog semiconductors. For his nine months at Freescale in 2008, Beyer earned a total of $14.7 million, including $11 million in stock awards, a $1.1 million minimum bonus payment and a $1 million cash hiring bonus, making him our sample’s second-highest overall compensated executive of 2008.
Executive turnover also hit Capmark Financial Group Inc., a troubled commercial real estate finance company acquired by KKR,
Looking forward, 2009 is already shaping up to be another down year for executive compensation for at least some of the companies in our survey. This past February, Freescale Semiconductor said that its executives were taking a voluntary and temporary base salary reduction as “one of a number of cost savings measures.” CEO Bayer accepted a 20 percent reduction in his 2009 base salary, lowering it to $880,000 from its original $1.1 million. Freescale Semiconductor employees, including its executive officers, were also compelled to take one week off without pay during the first and second quarters of 2009.
GMAC, meanwhile, has been forced to comply with limitations on executive compensation related to its participation in the government’s Troubled Asset Relief Program, or TARP, which has pumped billions of dollars of rescue financing into the company. New limitations include a prohibition on incentives that could cause senior executives to take “unnecessary or excessive risks” with the company; a ban on owning or leasing private aircraft and on other expenditures for corporate events, including travel, real estate, and corporate offices; restrictions on the amount of bonus and incentive pay awarded to the company’s 25 most highly-compensated employees; and a ban on most severance payments to senior executive officers.