CEO Daily Brief – Nov. 17, 2010
November 17 2010 by ChiefExecutive.net
CEOs Wary of Obama Administration’s Overture to Business
The Obama administration’s effort to reboot its relationship with the some of the nation’s top CEOs ran into a tough crowd Tuesday. A parade of administration officials sought to reassure about 100 corporate leaders gathered at The Wall Street Journal CEO Council in Washington that they were eager for business leaders’ ideas to revive the economy.
The CEOs, in a vote, said the government’s top priority should be to foster global trade and create a more business-friendly environment. CEOs also said uncertainty about government policy on taxes and regulation remained a barrier to unlocking $2 trillion in capital sitting in the treasuries of U.S. non-financial businesses.
U.S. businesses “don’t have the confidence to hire in the United States of America until we can believe that the government, the private sector and financial institutions are working together and connected again to pick up the mantle of growth,” said Robert Diamond, chief executive of Barclays PLC.
Taxes were a recurrent theme for CEOs. Bausch & Lomb Inc. CEO Brent Saunders said uncertainty about new rules on repatriating foreign profits—the issue that first pitted businesses against the Obama White House—means “we’re being a little more tentative on whether or not you want to move a plant, or invest.” Saunders said that in board and executive meetings, managers spend more time than they should creating contingency plans based on shifting U.S. policy.
The administration’s regulatory agenda was a sore point for some executives, too. Fedex Corp. CEO Fred Smith said that new federal rules affecting trucking and rail shippers would cost the industry $5 billion.
Nicholas T. Pinchuk, chairman and chief executive of tool maker Snap-On Inc., said his business had bounced back from the recession. But Pinchuk added that “the government tends to use business as a whipping boy. That tends to discourage investment.” He cited the expired research-and-development tax credit, which encourages businesses to invest in R&D. Congress and the Obama administration officially support reviving it, but that has yet to occur.
The administration officials said they want to lower business tax rates and support free trade—rebranded “rules-based trade.” Meanwhile, Republican congressional leaders Rep. Eric Cantor of Virginia, the likely incoming House majority leader, and Rep. Kevin McCarthy of California, the likely incoming Republican whip, told the CEOs they were determined to cut federal spending, extend tax cuts and overhaul the process by which Congress enacts laws so that the provisions of new laws are clear. Cantor said Republicans would move forward on trade-opening deals. McCarthy said Republicans wanted to consider ways to reduce the regulatory burden on businesses.
For more on The Wall Street Journal CEO Council, please click here.
Corporate Governance, CEO’s Roles Change over 25 Years
When looking at a snapshot of corporate boards today versus one from 25 years ago, it’s surprising to see how much has changed in board composition and governance. There are far fewer inside directors; more companies split the roles of chairman and chief executive officer; boards are smaller and more diverse, with older members; and boards meet less often. Still, these developments may ultimately seem modest as the impact of recent laws and regulations shapes board composition and boardroom dynamics over the next five years.
In the 25th annual Spencer Stuart Board Index (SSBI) report, it notes that in 1986, the CEO was the sole insider on fewer than a handful of boards. Today, the CEO is the only insider on more than half of all S&P 500 boards. The 1986 index did not address the separation of the chair and CEO roles. Today, 40 percent of boards split the chair and CEO roles. Outgoing CEOs who have made the transition to board chair account for just over half of these situations, but 19 percent of all S&P 500 boards now have truly independent chairs. As recently as five years ago, only 9 percent of S&P 500 chairs were truly independent.
For more from BusinessWeek about the Spencer Stuart Board Index (SSBI) report, please click here.
Health Care CEOs Earn Top Pay
Health-care company chief executives had the highest median pay of any industry captured by the recent The Wall Street Journal CEO Compensation Study. The median CEO pay in the industry was $10 million, according to the study, which was done in conjunction with consulting firm Hay Group. That beat out consumer goods at $8.9 million and telecom and oil and gas, both with median CEO pay of $8.6 million.
The study looked at total direct compensation, which includes salary, bonuses and the value of long-term incentives, including stock and stock options at the time of the grant. Often, then, the income earned by health-care sector CEOs was tied to performance. That means the CEOs earned their higher salaries by leading competitive companies.
In addition, Paul Dorf, managing director of Compensation Resources Inc., a compensation consulting firm, said the resiliency of the sector as a whole led to high pay in health care. The total shareholder return for Thermo Fisher Scientific, for example, where CEO Marc Casper received total compensation of $33 million, was 40 percent in fiscal year 2009. (Casper became CEO in October 2009.)
In addition, in some cases salaries were increased by major gains in options. For instance, Stephen Hemsley, the CEO of UnitedHealth Group, with a 198 percent jump in total direct compensation, had among the biggest year-over-year percentage gains in pay among health-care CEOs. Hemsley also had $99 million in realized long-term incentives, which mostly came from gains in options exercised in the past fiscal year. That gave him the second-largest realized long-term incentive windfall among the CEOs analyzed.
For more about health-care CEO salary from The Wall Street Journal, please click here.