Lockheed Martin Corp.'s CEO Robert J. Stevens has had a lucrative career at the nation's largest defense contractor, and his pay has been outlined to shareholders for years.
But investors didn't know how lucrative his retirement could be. The Bethesda-based company has disclosed for the first time that in addition to $5.2 million in salary and bonus, plus stock awards and perks last year, Stevens also accrued more than $2 million in three pension plans, two 401(k) plans and a tax-advantaged plan mostly used by the corporate elite.
Companies such as Lockheed Martin are revealing more about the pay and perks conferred on the nation's chief executive officers than ever before. This year, public companies must follow new regulations aimed at shedding a brighter light on the executive pay that some shareholders and activists say has grown unchecked for years. Activists also point out that rank-and-file workers haven't seen proportionate benefits.
"It's fairly amazing, some of the amounts we're seeing, particularly in pensions," said Paul Hodgson, an analyst at the Corporate Library, a governance watchdog group. "If you make millions of dollars a year, you should have been able to save enough money or amass enough stock to get through retirement."
Stevens, whose pay package totaled $18.6 million, ranked among the highest-paid CEOs in Maryland last year, according to a survey by Salary.com of companies with headquarters here. Others included Constellation Energy Group Inc.'s Mayo A. Shattuck III, whose compensation package was worth $20 million, and Legg Mason Inc.'s Raymond A. "Chip" Mason, whose package was valued at $13.7 million.
Overall, 52 Maryland CEOs made more than $1 million last year, according to the salary survey commissioned by The Sun. The survey was based on data obtained from proxy statements and other public filings.
Among the figures revealed in this year's pay reports:
Retirement benefits, sometimes exceeding annual salaries, that were not fully reported or were difficult to quantify in the past.
Multimillion-dollar exit packages, which are often paid even when an executive is fired for poor performance. Such "golden good-byes" had been disclosed previously in employment contracts. But the value of the potential payouts was typically difficult to calculate.
For example, Silver Spring-based Choice Hotels International Inc. CEO Charles A. Ledsinger Jr. could receive an exit package worth $14.3 million if he were fired, according to public documents. He could collect his salary and bonus, use the company aircraft and expense his country-club dues until December 2009.
Perks that are worth a total of more than $10,000, including corporate jet rides for personal use and home security systems. Before, companies had to disclose only perks worth more than $50,000 and in far less detail.
Among the companies providing the most perks to CEOs in Maryland is Towson-based Black & Decker Corp. The company reported that Chairman and CEO Nolan D. Archibald received 2006 perks including a car and driver for business travel worth $68,553 and personal travel on company planes worth $437,317.
The reports also contain more detailed explanations for how boards of directors determine annual bonuses and other performance-based awards, as required under the new regulations. Investors have groused that directors too often rubber-stamp management recommendations, or set perimeters that inflate pay.
Officials with the Securities and Exchange Commission, the federal agency that crafted the regulations, say that investors are getting a better picture of CEO pay. But regulators have criticized some companies for loading up reports with legalese and boilerplate language, rather than using the "plain English" called for by the rules.
Shareholder advocates complain that some reports are simply too long for the average investor to easily digest. The report from Lockheed Martin is 32 pages. Constellation, which owns the Baltimore Gas and Electric Co. utility, took 28 pages to explain its pay program, and Baltimore's Legg Mason, one of the world's largest money managers, took 18.
Companies contend that the new disclosures can distort executive compensation because what is counted as pay isn't actually in an executive's paycheck.
Perhaps the most controversial is the total compensation figure. It's a calculation dictated by the SEC, which wanted to give shareholders one headline number encompassing the various ways CEOs are rewarded.
Companies complain that the total includes pension earnings that aren't touched as well as stock options that weren't necessarily cashed out. Instead, the total includes the options that the company expensed that year -- an accounting measure that differs from what the company actually granted the executive.
Constellation Energy, for example, reported the $20 million total compensation figure for Shattuck this year but offered a footnote saying the 2006 figure was actually $14 million. The larger figure included stock options that were granted in previous years.
Options allow executives to buy stock at a set price over a specified period of time. Their eventual value depends on whether, and by how much, a stock rises subsequently. Companies argue that options are technically worthless when they are granted and that they are a good way to directly tie pay to a company's performance.
Directors and company officials say they work hard to craft pay programs that not only tie pay to performance but also attract and keep capable executives.
"These are huge numbers, but we all in America have the opportunity to go for these jobs," said Steven Hall, founder of New York firm Steven Hall & Partners, which consults on compensation plans with boards. "I don't think a lot of people understand the stress and strain it takes to get to be CEO and then to do a good job. And I'm not just sucking up to these people."
Some of the biggest paydays at Maryland businesses came in the form of cash bonus programs tied, at least in part, to company performance.
At Constellation, a $10.8 million bonus and $2 million worth of fully vested stock units made up more than half of Shattuck's pay package. Part of his long-term bonus will be paid in 2008.
When setting the compensation levels, the company's directors considered earnings-per-share targets that had been recommended by management and that the company ended up exceeding. Similarly, the company has consistently beat Wall Street estimates after management has provided industry analysts with earnings forecasts.
Constellation stock rose 20 percent last year and soared more than 25 percent in the first six months of this year.
"If you look at Mr. Shattuck's compensation in 2006, 90 percent of what Mr. Shattuck earned was at risk and was performance-based," Robert J. Lawless, a Constellation director, said at the company's annual meeting in May. "While the number is large, I think if you look at the total shareholder returns in 2006 versus 2005, it's modest compared to the shareholder wealth this team created in 2006."
Lawless is CEO of McCormick & Co., the Sparks-based spice maker, and chairman of Constellation's compensation committee. He made $7.8 million last year at McCormick, which reported compensation under the old SEC rules. The company's fiscal year ended before the new rules took effect in December.
At Legg Mason, almost half of Mason's pay came from a cash bonus of $6 million. The bonus, which could have been more than $30 million under a formula disclosed in the company's proxy, represented a steep cut from his $14 million bonus the year before.
In setting last year's bonus, directors considered the fact that Legg's stock price dropped 25 percent in the past fiscal year and that Mason shared duties with James W. Hirschmann, who was elected president and was responsible for day-to-day operations. (Hirschmann relinquished the post this year.)
The directors also considered Mason's own recommendation that his bonus be reduced.
CEOs at S&P; 500 companies earned an average of $14.8 million in total pay last year, and the median increase from the year before was 24 percent, according to the Corporate Library. The group used its own calculation to compare compensation with past years.
The Corporate Library also found that poor disclosure might have masked the value of perks granted to executives. In a survey of 100 companies, the group found that the cost of perks and benefits such as insurance premiums increased on average by 130 percent last year when compared with 2005.
Wages for the average worker haven't nearly kept pace with the growth of CEO compensation. According to the Institute for Policy Studies and United for a Fair Economy, the CEO-worker pay gap has widened to more than 400-to-1. If the federal minimum wage had risen at the same pace since 1990, it would be $22.61 an hour, rather than $5.85.
Executive compensation levels have sparked a national debate. Congress is weighing legislation that would give shareholders the right to cast symbolic, nonbinding votes on pay for top executives. The House has passed the measure, and Democratic presidential hopeful Sen. Barack Obama has sponsored a companion bill. President Bush opposes the legislation but publicly chastised executive pay that's not tied to performance during his "State of the Economy" speech in January.
Scandals over the timing of stock option awards to executives have stoked shareholder ire over pay. The SEC and federal prosecutors are investigating more than 100 companies over alleged backdating. The practice can make the awards more profitable by retroactively setting the exercise price to a low point in the stock's value.
Exit packages also have hit a nerve with shareholders. Many groused when Pfizer Inc.'s Henry McKinnell and Home Depot Inc.'s Robert Nardelli received packages worth about $200 million each, despite stock declines during their tenures. Both CEOs resigned.
This year, some companies are outlining exactly what those packages include in easy-to-read tables.
For Ledsinger at Choice Hotels, his exit package could be worth more than three times what would be paid if he died while employed at the company, which operates Comfort Inn, Econo Lodge and Clarion Hotels.
Spokesman David Peikin said independent directors are responsible for reviewing and setting executive compensation. "We really want to make sure that we're able to hire and retain qualified, talented executives," he said.
Such post-employment payouts are typically negotiated as part of an executive's contract and are becoming more common as CEO turnover is on the rise. One in seven of the world's largest companies underwent a change in leadership in 2005, and nearly half of CEOs left because of poor performance or mergers, according to the consulting firm Booz Allen Hamilton. Companies that saw CEO departures were up from one in 11 a decade earlier, the firm said.
Chris McGee, a principal at Mercer Human Resource Consulting who works with several companies in the Baltimore-Washington area, said companies agree to the exit packages because good CEOs are in demand. And the CEO has to think of his or her own interests, he said.
"It's not like they can walk across the street and get another comparable job at McDonald's," McGee said. "They're looking at a two- to three-year job search."
New disclosures about retirement benefits could cause more shareholder backlash. Executives are typically covered under the same pension plan as other employees, but because the Internal Revenue Service limits how much salary can be taken into account when determining future benefits, companies offer supplemental plans.
But companies also offer 401(k) plans, and supplemental 401(k) plans. And some allow executives to defer pay -- and taxes -- until retirement in accounts that are invested or earn interest.
And if a plan is implemented late in an executive's career, a company can make up for lost time. At Hanger Orthopedic Group, the company implemented a supplemental pension plan in 2003, and the annual accruals were accelerated so that CEO Ivan R. Sabel's 26-year career can be accounted for by the time he turns 65 in 2010.
Officials with the Bethesda-based company, which distributes and fits braces and artificial limbs, said the company created the plan to remain competitive with pay packages at other companies of Hanger's size.
At Lockheed Martin, Stevens has two pension plans because one dates to a predecessor. Spokesman Jeff Adams said the supplemental retirement plans enable the company to provide executives the same benefits -- as a percentage of compensation -- as salaried employees.
Don Lindner, an executive compensation practice leader at the consulting firm World at Work, said that oftentimes directors approved benefit plans without considering the other programs already in place. That could change after this year, he said.
"They are going to take a real hard look at these supplemental and deferred compensation plans and ask, 'Why are we doing this? Do they really need this for retirement?'" he said. "If they can justify the plans, they will keep them. If they can't, they will either do away with them or tone them down."
laura.smitherman@baltsun.com
Sun reporters Tricia Bishop, Allison Connolly, Jay Hancock, Stephanie Newton and Jamie Smith Hopkins contributed to this article.