Boeing Co.
Summary:
Overall, we feel that Boeing is doing a pretty good job with their compensation program. The absolute compensation numbers are very reasonable, but the perquisites and termination clauses need some work. With an expected drop off in profit and sales in 2008, we are taking a wait and see approach to see how the committee responds to the position of the company.
Analysis:
The Aerospace & Defense Industry is definitely in a boom time. The industry's performance over the last 5 years or so has been very strong. The big corporations are seeing large order volumes and are experience an increasing backlog of orders.
One of those big corporations is the Boeing Company. Boeing is a leading manufacturer of commercial jet airplanes, and also plays a big role in defense contracting. By all accounts, one of their best years occurred in 2007. Earnings were up for the fourth straight year and set yet another record high. Not only were sales high, but their margins were the best they've made in well over 5 years! The orders just keep piling in, as evidenced by their backlog of almost $300 billion.
Although there are signs that the company could begin to start sliding in the upcoming years (i.e. dramatic fall in the stock market in 2008, loss of large government contract to Northrop Gruman, fighting in Congress, etc.), this was certainly not the case in 2007. Expect the executive compensation program to be pretty hefty.
So… What Are They Paid?
The front end of the compensation program appears to be average. The "front end" consisting of salaries (above average), bonuses & non-equity incentives (average), and stocks & options awards (average). All of these categories were very reasonable, especially considering Boeing had another record year in 2007.
The back end of the executive compensation program, on the other hand, has some areas for concern. Perquisites were high in many of the typical categories. The CEO, for instance, racked up nearly $300,000 in incremental costs for his personal use of company aircraft. The NEOs all seem to travel by plane as well, two of them accumulating $95,000 and $130,000 in incremental costs. There is an allowance for company cars and a personal driver for the CEO, but the amount was not itemized. Some other unusually high perks included the CEOs financial planning costs ($100,000), as well as the installation of a backup generator in his home ($90,000).
The termination and change in control clauses are also included in the "back end". The CEO should feel very secure about his position since a large severance payment is waiting for him upon leaving his post, whether he's fired or decides to leave on his own. He can just walk away tomorrow and receive about $43 million, $10 million of which is a severance payment. Firing without good cause or termination due to a change in control of the company boosts the severance package by another $5 million.
Compensation Details:
| CEO | NEO Avg. | |
|---|---|---|
| Base Salary | $1,800,077 | $744,759 |
| Bonus | $0 | $0 |
| Stock | $4,845,489 | $917,713 |
| Options | $3,661,663 | $689,543 |
| non-Equity Incentives | $4,266,500 | $1,119,425 |
Reference Links:
(1) Annual
Proxy Statement
(2) Annual
Report