Procter & Gamble Co.
Summary:
I guess this program is why I can't see the S.T.A.R.s at night; these guys took them all (and here I thought it was the smog). Management may have some tough decisions to make this year, but its nothing compared to the clean-up work needed from the compensation committee.
Analysis:
The U.S. economy has not been kind to the companies selling household products. Rising energy and material costs continue to eat away at profit margins, forcing companies to increase product prices. Procter & Gamble is one of those companies feeling the pressure. It is estimated that P&G has taken on an additional $1.4 billion in expenses, due to these rising costs. They have combated these input cost increases by increasing their prices, along with investing in efficiency and cost-reduction efforts.
Although consumers may be mad about the inflationary pressure on some of their favorite household products, raising prices makes sense in the short-term. However, management will really earn their paychecks based on the long-term decisions they are making now, most notably in efficiency and cost-reduction efforts. If the appropriate investments are made, it could result in long-term success for the company.
So while management is facing some tough decisions in the near future, what kinds of decisions are facing the Board of Directors? Is an appropriate executive compensation program already in place, or are there serious changes in store? Let's take a look at what we have.
So… What Are They Paid?
The CEO and NEOs' salaries are relatively high. The CEO was earning $1.7 million, whereas the NEOs were averaging about $900,000 in base salary. The Bonuses given out were $3.5 million for the CEO, and an average of $1 million for the NEOs. An average total amount, but the program itself is a little too subjective for our tastes. The beginning target bonus number is 80% of the CEO's salary, but then discretion is used to figure out percentages to be used for three different multipliers. It would seem improbable to come up with a nice round number like $3.5 million after going through 3 different multipliers with different percentages, but the Committee managed to pull it off.
The name of this program, ironically enough, is the S.T.A.R. program. It's ironic because the executives sure are "reaching for the stars" when it comes to collecting a paycheck. Add in another $2.6 million in Non-Equity incentives (which is really just another bonus) and the CEO seems to have a lot of incentive to stay put.
Stock and option awards are also very high. The CEO received $9.2 million in stock awards and $10.3 million in option awards for 2007. Perquisites? Try over $200,000 for the CEO's personal use of company aircraft and another $68,000 for tax reimbursements. Add in a change in control clause that allows accelerated vesting of stock and option awards and you have one heck of a compensation package.
Compensation Details:
| CEO | NEO Avg. | |
|---|---|---|
| Base Salary | $1,700,000 | $906,250 |
| Bonus | $3,500,000 | $1,011,500 |
| Stock | $9,230,000 | $958,000 |
| Options | $10,328,000 | $3,155,500 |
| non-Equity Incentives | $2,601,000 | $682,750 |
Reference Links:
(1) Annual
Proxy Statement
(2) Annual
Report