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Big swings in CEO pay tied to performance of company

| Saturday, June 1, 2013, 9:00 p.m.
Pittsburgh Tribune-Review
James Rohr announced Feb. 14, 2013, that he will step down as CEO of PNC Bank after 13 years in which he presided over tremendous growth and steered the bank through the worst downturn in the economy since the Great Depression.

Item: The earnings of James Rohr, former CEO of PNC Financial Services Group, fell 46 percent to $8.9 million last year as the Downtown bank's financial performance slipped.

Item: Robert Fisch, chief executive of rue21 Inc., pulled in $4 million last year, a 54 percent raise, as the Marshall-based clothing retailer posted double-digit increases in stock price and profit.

Those big swings illustrate how executive pay is increasingly being tied to financial performance at large companies, experts say. With a greater percentage of compensation coming in the form of company stock, executives' fortunes can rise and fall depending on how well their companies do.

Overall, CEO pay has been going in one direction for the past three years: up.

The head of a typical large public company made $9.7 million in 2012, a 6.5 percent increase from a year earlier that was aided by a rising stock market, according to an analysis using data from Equilar, an executive pay research firm. CEO pay, which fell two years straight during the Great Recession but rose 24 percent in 2010 and 6 percent in 2011, has never been higher.

Rohr, who became executive chairman of PNC in April when the bank promoted William Demchak to CEO, did not receive a bonus last year, which was $2 million in 2011. And his stock awards last year were $4.9 million, compared with $8.9 million the year before.

PNC's net income last year was $2.8 billion, down from $3 billion in 2011. Its stock price remained virtually flat during the year.

Bank spokesman Fred Solomon declined to comment.

The results were different at rue21, which grew net income to $43.9 million last year, up 13 percent from the previous year. And its stock jumped 17 percent in value during 2012. And Fisch benefitted. His base salary increased to $1 million, up from $975,000, and he received stock and options totalling $2 million, compared with no stock awards in 2011.

Spokesmen with the clothing chain could not be reached for comment. The company on May 23 said it struck a $1.1 billion deal to be acquired by private equity firm Apax Partners.

Not every CEO's pay appears dependent on gains in profit or stock price, according to the Tribune-Review's annual review of the compensation paid to CEOs of publicly traded companies in Western Pennsylvania.

John Surma, CEO of U.S. Steel Corp., received a 9 percent raise to $11.1 million last year despite a net loss of $124 million and company's stock losing 16 percent of its value in 2012.

Spokeswoman Courtney Boone declined to comment on Surma's pay, which included a base salary of $1.3 million, stock and option awards totalling $5.9 million and bonus of $1.2 million.

U.S. Steel shareholders in April approved the executive compensation in an advisory vote that all publicly traded companies have been required to hold since 2011.

Among the CEOs at the 25 largest publicly traded companies in Western Pennsylvania, 10 got raises, 12 saw pay cuts, one saw no change and two had no prior-year comparison because they were first-time CEOs in 2012. Average CEO compensation at those companies was $7 million, down 8 percent from $7.6 million in 2011.

The highest-paid CEO last year was J. Brett Harvey of Consol Energy Inc. His total compensation was $17.7 million, up 3 percent from $17.2 million in 2011.

While Consol's 2012 profit dropped 39 percent and its stock was down 16 percent for the year, Harvey's pay was little changed. He did not receive stock options, but his stock awards were raised by about $1.3 million from 2011. And his bonus of $2.8 million was up about 3 percent.

No. 2 on the list was William Johnson, CEO of Pittsburgh condiment maker H.J. Heinz Co. Johnson's total compensation of $16.2 million was down 13 percent from 2011 primarily because of a lower bonus and a drop in the value of his pension plan.

But Johnson, who will be replaced when a $28 billion buyout of Heinz is completed next month, will be collecting a hefty golden parachute this year. Under his contract, Johnson's compensation is $212.7 million if he leaves, including nearly $100 million in stock he was awarded before the buyout by Warren Buffett's Berkshire Hathaway and investment firm 3G Capital was announced in February.

Heinz shareholders in April approved the deal but in a non-binding vote rejected Johnson's golden parachute.

Larger portions of CEO compensation are coming in stock and options to buy stock later in response to shareholder concerns that executives could reap big paydays while their companies tanked.

On average, base salary accounted for 12 percent of total compensation at the 25 companies, stock awards represented 40 percent, stock options were 17 percent, and bonus was 24 percent, the Trib's review found.

“I've never seen an environment where boards take more time trying to get this right,” says Charlie Tharp, CEO of the Center on Executive Compensation, an advocacy group that supports corporations.

Shareholder activists and some corporate governance experts say many CEOs are being paid far above what is reasonable or what their performance merits. Pay for all U.S. workers rose 1.6 percent last year — not enough to keep up with inflation. The median wage in the U.S. was about $39,900 in 2012, according to data from the Bureau of Labor Statistics.

Companies say they need to pay CEOs well so they can attract the best talent, and that this is ultimately in the interest of shareholders.

But critics still contend that stock awards can drive CEOs to focus on short-term results. They're also anxious for the Securities and Exchange Commission to implement a rule required under the Dodd-Frank financial reform law that would force big public companies to disclose the ratio of their CEOs' pay to the median pay for their entire workforce.

“If you're making $10 million a year, you get into a situation where life isn't real anymore,” says Eleanor Bloxham, CEO of the Corporate Governance Alliance, which advises boards.

The Associated Press contributed. Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or anixon@tribweb.com.

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