Silicon Valley's top CEOs got a hefty bump in their paychecks for 2010, after two years of recession-driven pay declines, as last year's economic rebound helped the big bosses blow past their performance targets and collect sizable bonuses.
Median compensation for chiefs of the valley's biggest public companies rose 37 percent -- to $2,756,621 -- in 2010, after declining nearly 5 percent in 2009 and nearly 6 percent in 2008, when the recession hit the valley hard. That's more than 20 times the average increase for all workers.
Not everyone got a raise, according to the Mercury News' annual What the Boss Makes survey. Oracle (ORCL) chief Larry Ellison was the valley's reigning pay champ in 2010 just as he had been the previous three years. He actually took a 17 percent pay cut last year -- although his total pay was still valued at $70 million.
But nearly two-thirds of the valley's corporate CEOs, from Adobe's (ADBE) Shantanu Narayen to VeriFone's Doug Bergeron, found something extra in their pay envelopes last year, as the valley's biggest companies
compensation reflects both the economic recovery and the growing inclination by shareholders and directors to link executive pay with company performance. For many CEOs, it didn't hurt that the goals used to determine 2010 bonuses were set 12 months earlier, when expectations were lower because the recession was still in full swing.
Last year's biggest percentage increase went to Jure Sola, chief executive at electronics manufacturer Sanmina-SCI. Sola, who took a pay cut when his company underperformed in 2009, saw his 2010 compensation grow 566 percent, from $1.1 million in 2009 to $7.45 million in 2010.
That included stock options and a $1.4 million bonus, awarded under a plan approved in December 2009 by the compensation committee of Sanmina's board of directors. Among other things, the formula set a minimum target for Sanmina to achieve $5.4 billion in revenue for 2010, which the committee viewed as "moderately difficult to difficult," according to the company's proxy, which cited challenging economic conditions that led the company to fall short of its 2009 revenue target.
As it turned out, Sanmina had $6.3 billion in 2010 revenue and reported its first
profit in several years.
Other companies had similar stories. "They're setting targets based on the results of the previous year," said David Eaton, an executive pay expert at the Glass, Lewis shareholder advisory firm. As the economy bounced back, he added, the targets for 2010 were "not that hard to hit."
"That probably won't be the case in 2011," added Shekhar Purohit, managing director at compensation consulting firm Pearl Meyer & Partners, who predicted that CEO pay will increase more modestly this year as companies revise their targets to reflect a stronger economy.
By comparison, the U.S. Bureau of Labor Statistics reported the average annual salary for all workers in the San Jose metropolitan area was $67,850 in 2010, up 1.6 percent from a year earlier.
The Mercury News survey looked at CEO salaries, bonuses, stock grants and options reported by the valley's 145 biggest publicly traded companies for their 2010 fiscal year, as compiled by Equilar, an executive compensation research firm.
The survey uses the reported value of stock and options granted during the fiscal year, although the executive might not profit from those grants until they are vested or exercised in the future.
Median profit for those companies was $35 million, up from $600,000 in the middle of the downturn in 2009.
"The earnings came in and they were quite good, reflecting the economic recovery," said Robin Ferracone of Farient Advisors, a corporate pay consulting firm. "And the executives got paid as a result."
That's what propelled chipmaker Atmel's Steven Laub from his rank of 13th highest-paid CEO on last year's list to No. 2 this year, with a pay package higher than any others except Ellison.
Laub had a base salary of $742,223 for 2010. But he also was awarded a performance bonus of nearly $1.9 million and a stock grant valued at $16.7 million -- for a total package worth nearly $19.4 million.
Atmel explained in a proxy statement that Laub's bonus and stock were both tied to the company's "significantly improved operating results in 2010," including an increase in its operating profit, as the company swung from a $109 million loss in 2009 to a $423 million profit last year.
Laub's total pay was actually less than the reported value of $23.8 million in cash and stock that tech behemoth Hewlett-Packard (HPQ) gave ex-CEO Mark Hurd. The former HP boss's total, however, includes $12.2 million in severance that he collected after resigning abruptly in a scandal last August.
HP's chief financial officer, Cathie Lesjak, stepped in temporarily as CEO for the last quarter of the company's fiscal year. The company's board thanked her with a cash bonus of $1 million and stock valued at $2.6 million, bringing her total pay for the year to $7.7 million.
In contrast, Apple's (AAPL) Steve Jobs took only $1 in salary -- as he has for several years -- making him the lowest-paid CEO on the Mercury News list, even though Apple reported $14 billion in annual profit, the highest of any company based in Silicon Valley. Jobs has a personal fortune estimated at $8.3 billion.
Like Jobs, former Google (GOOG) Chief Executive Eric Schmidt also drew just a buck in salary, but Schmidt also pocketed $313,218 in bonuses and other compensation. Ellison also agreed last year to reduce his annual salary to $1, according to Oracle's proxy, although he still reaped $6.4 million in incentive cash and options valued at $61.9 million
But some investors and corporate governance advisers are still concerned about the fat paychecks collected by many CEOs. And by one measurement, Silicon Valley companies on the whole didn't do much better last year than they had the year before.
Total shareholder return, which includes dividends and any increase in the price of a company's stock, improved only slightly as the median rose from 21 percent in 2009 to 23 percent in 2010.
Shareholders in Cisco Systems (CSCO) saw only a 5 percent return last year, even as the company's profit rose from $6.1 billion in 2009 to nearly $7.8 billion in 2010. CEO John Chambers' total compensation more than doubled as a bigger bonus, stock grant and options drove his pay from $9.1 million in 2009 to $18.8 million last year.
"If you look at where shareholders are, relative to five years ago, at most companies the shareholders aren't that much better off. So that raises a lot of questions and concern over these pay packages," said Carol Bowie, a corporate pay and governance expert at proxy advisory firm Institutional Shareholder Services.
Partly in response to past criticism of executive pay, corporate boards are increasingly designing pay packages to include cash and stock incentives that are tied to financial performance, said attorney Joseph Yaffe, a compensation expert in the Palo Alto office of law firm Skadden Arps. The size of awards may be based on the company's internal goals for items such as revenue, operating profit or earnings per share.
Stock options have always been popular in Silicon Valley, where they are seen as a powerful incentive for executives to make share prices rise. But Frank Glassner, head of Veritas Executive Compensation Consultants, said companies no longer award options as freely, now that regulators require them to be counted as a corporate expense.
The pay category that grew the most last year was that of "non-equity incentive plans," or cash bonuses for achieving specific goals. The median incentive bonus almost tripled, from $111,773 in 2009 to $422,107 in 2010
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