3M Company
Summary:
Overall, the executive compensation program at 3M looks good. We also like some of the new additions to the program. There are a few small areas for concern, but only the bonuses given to the CEO were a significant amount. This amount should change since the company has implemented a new incentive plan and they are currently experiencing a tough 2008. Next year's report should give us a good idea about how well-aligned the new program is with shareholder interests.
Analysis:
Formerly known as the Minnesota Mining and Manufacturing company, 3M is one of the most diverse companies you will find. It operates in over 200 countries and has a more than 50,000 products, and growing. Their business segments range from Transportation to Industrial to Health Care. In addition, they are well-diversified internationally, with 60% of their sales coming from abroad.
2007 has seen an overall average performance. Sales and operating income increased in all segments, save the Health Care unit. The company is now moving further into developing countries and expanding its product offering. Due to the demands of the local markets, 3M has focused primarily on high volume, low margin products. This focus, combined with supply chain efficiency efforts, should allow them to increase revenue at a steady pace over the foreseeable future. Growth will have to be significant, however, as low margins will continue to put downward pressure on the bottom line.
Management appears to have done well to position the company for future growth abroad and the company should do well in the future, despite a recent downturn due to the weakened domestic economy. So were they rewarded for their efforts? We would expect to see moderate pay across the board for 2007.
So… What Are They Paid?
The compensation is average for many of the areas we looked at. Salaries, options, and stock awards were all relatively low, especially stock awards which amounted to less than $3 million for the CEO, George Buckley, and a $0 or a very low amount for the NEOs. One area for concern is the total bonus amounts given out. This area includes both cash bonuses and non-equity incentives. While the NEO average was low, the CEO was awarded over $8 million. This was more than double the average given out to comparable companies in the DOW Industrial Index.
The rest of the executive compensation looks very good. Perquisites were just average, for most categories. The only area that appeared extensive was the $175,000 given to the CEO to beef up the security at his home. The termination and change in control clause look reasonable as well. The CEO would receive $25 million if fired without good cause and a similar amount if let go after a change in ownership. The only negative was the cash severance of $9 million, which is high.
The board also mentions that they are implementing a new-look incentive program, which is geared towards rewarding the execs for organic growth and business performance. In addition 3M will be comparing its executive compensation program with a peer group from now in. This is a growing trend with compensation programs.
Compensation Details:
| CEO | NEO Avg. | |
|---|---|---|
| Base Salary | $1,670,000 | $593,525 |
| Bonus | $3,663,093 | $460,567 |
| Stock | $2,888,867 | $166,564 |
| Options | $3,562,122 | $1,407,027 |
| non-Equity Incentives | $4,521,495 | $835,229 |
Reference Links:
(1) Annual
Proxy Statement
(2) Annual
Report