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As companies do well, state CEOs’ raises top national average

While the median pay for CEOs nationwide increased by 6 percent, the compensation for Maryland’s top executives grew at a 50 percent higher rate.

Lockheed Martin President and CEO Robert Stevens

The median pay for chief executives in a sampling of Maryland’s publicly traded firms was $5.9 million in 2011, an increase of 9 percent from the previous year. But the faster rate still puts Maryland’s median below the national figure.

The median pay for CEOs of companies in the S&P 500 was $9.6 million, a 6 percent increase over 2010, said Aaron Boyd, director of research at Equilar, an executive compensation data firm.

To get an idea of how local CEOs fared in 2011, The Daily Record enlisted California-based Equilar to compile data reflecting compensation at 22 public companies headquartered in Maryland and two firms with large local representations that filed proxy reports by May 29.

“We’re seeing pay up for the second year in a row,” Boyd said, adding that the driver for the larger paychecks has been stock awards, rather than cash bonuses.

The second year of compensation increases comes hand-in-hand with increased profits at some of the state’s largest firms.

Maryland’s highest-paid CEO was David Zaslav of Discovery Communications.

Zaslav earned $52.4 million, a 23 percent increase over his 2010 pay. The company’s profit grew 73 percent last year.

The chief executive of the Silver Spring-based media company saw a nearly $1 million increase in his base salary and about $8 million added to his option awards. Total stock and option award pay accounted for 84 percent of Zaslav’s compensation, according to Equilar, which uses company proxy statements to report on executive compensation.

But while Discovery saw its profit increase, the boost did not carry over to its stock price, which decreased over the year by 73 cents a share, or 2 percent.

This is the second year the company has had a “pay-for-performance misalignment,” with pay outranking performance, according to a report by the Institutional Shareholder Services, a Rockville-based firm that provides research and advice to shareholders participating in corporate decisions.

“Last year, ISS had recommended that shareholders vote against the company’s say-on-pay proposal due to the large non-performance-based equity awards granted to CEO Zaslav pursuant to his employment agreement,” the ISS report said. Zaslav’s option awards vest over four years.

ISS estimates Zaslav’s 2011 salary at $68.7 million, not $52.4 million. The option awards that the company values at $23.9 million are worth $40.2 million, according to ISS.

That’s one reason why reviewing executive compensation can be tricky. The option values listed by companies are based on the date they were granted, but there is no assurance that the executive will actually get that amount of money.

More and more, companies are moving away from option awards, which can incentivize risk, and toward restricted stock awards, said Michael Faulkender, an assistant professor at the University of Maryland’s Robert H. Smith School of Business.

Options can “immunize executives to how bad things can get,” he said.

That’s because the amount the award holder earns from exercising options depends on the stock price rising. If the shares stay the same or lose value, the options are worthless.

The strike prices for Zaslav’s options are $22.91, $14.43, $31.69 and $41.17, with the stock price hovering near $50.

Of the 24 companies included in data provided by Equilar, the executive compensation data firm, 15 granted their chief executives stock awards and 14 received options. Eight received both. That’s nearly unchanged from the previous year, when 14 CEOs received stock awards and 13 received options. Six received both in 2010.

Robert Stevens of Lockheed Martin Corp. was the second-highest compensated CEO in Maryland, earning $20.5 million in 2011, up 7 percent from 2010. Stevens, however, received nearly half of his pay through a combination of a non-equity incentive payment — a cash bonus linked to performance — and a separate cash bonus.

Still, Lockheed is “a company that had a less than stellar result in 2011 and rebounded in 2012,” said Patrick McGurn, special counsel for the ISS.

Lockheed held discussions with shareholders before its 2011 annual meeting and advisory vote on executive compensation. That resulted in changes to the company’s equity-based incentive awards and a vote of support for the compensation plan. In 2012, the company again engaged shareholders to discuss compensation and governance.

The “say on pay” regulation is now in its second cycle. Under the Dodd–Frank Wall Street Reform and Consumer Protection Act, companies are required to give their shareholders an advisory vote on compensation at least once every three years.

McGurn said companies aren’t typically rewarding executives when the business’ performance is faltering.

“What we tend to see these days are boards that haven’t done a really good job of setting the hurdles high enough so that, ultimately, investors aren’t seeing adequate bang for their buck under those compensation programs,” he said.

About 40 of country’s largest 3,000 companies received failed votes in 2011, he said. That means shareholders disapproved of the pay packages granted to top executives. But companies don’t have to pay attention; the vote is not binding.

So far in 2012, shareholders at more than 30 companies have voted against executive compensation packages, said McGurn, who expects that number to reach into the 50s. Only two companies have received failed votes two years in a row, he said.

“The vast majority of failed votes in 2011 got 90-plus percent [approval] because they actually went out and talked to investors,” he said.

Maryland’s biggest increase went to Joseph J. Bouffard, CEO of Baltimore-based BCSB Bancorp. Bouffard took home $850,350, a 95 percent increase from $435,425 in 2010, according the data compiled by Equilar.

The increase was largely driven by $336,323 in stock and option awards.

The Daily Record also analyzed the compensation of Exelon CEO John Rowe and Stanley Black & Decker CEO John Lundgren. Though the companies are not based in Maryland, they have significant holdings in the state.

Rowe’s 2011 pay increased 56 percent to $10.2 million. The company’s profits, however, fell 2.7 percent.

After a hefty stock award in 2010, Lundgren’s 2011 pay fell by 63 percent to $12.1 million, while profit grew by 240 percent and stock value rose by 1 percent, to end the year at $67.60.

The company, which is based in Connecticut, was created after a 2010 merger of Baltimore’s Black & Decker and Connecticut-based Stanley Works, a hardware and home improvement manufacturer.

On average, pay for chief executives in the sampling of Maryland’s publicly traded firms increased by 13 percent last year over 2010.

Other big winners in 2011 were Gary B. Smith, CEO of network equipment maker Ciena Corp., and Alfred E. Festa, CEO of chemical company W.R. Grace & Co. Smith took home 79 percent more in 2011. His $3.9 million total pay was driven by just more than $3 million in stock awards. Festa got a 67 percent bump, to earn $8.7 million, nearly half of which was in option awards, with another $3.5 million in a performance-based cash bonus.