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These CEO's were at the helm when their companies took a nose dive. The options they held allowed them to buy shares at the bottom, and then sell them as they rebound. Slick move on their parts
CEO pay windfalls: Stock options rise on market rally - MSN Money
During a recession in which many Americans have had to live without pay raises -- or even jobs -- we've at least been able to take some comfort in knowing that high-level execs shared our pain.
CEO pay supposedly declined about 11% in 2009, to an average of $7.2 million at Standard & Poor's 500 Index ($INX) companies, according to The Associated Press.
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But those numbers hide a little secret about pay in a lot of corner offices: Despite the dismal economy, many CEOs had one of their best years ever.
Some of the biggest winners scored huge amounts, thanks to well-timed stock-option grants that let them buy stock near the prices of the market's March 2009 lows -- and then watch the value of those stocks soar in one of the biggest bull runs in history.
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The top five of these options kings are the leaders of Ford Motor (F, news, msgs), Starwood Hotels & Resorts Worldwide (HOT, news, msgs), American Express (AXP, news, msgs), Nabors Industries (NBR, news, msgs) and Tenet Healthcare (THC, news, msgs), according to data compiled for me by Equilar, an executive compensation research company based in Redwood Shores, Calif.
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They're sitting on windfalls of $25 million to $48.8 million for a year in which most of them cut jobs, downsized businesses, bragged about their own austerity -- or all three. To be fair, their stocks did rise faster than the market in the rally, but only after setting multiyear lows on their watch.
That prompts a question: If a company's stock falls on a CEO's watch, does he deserve a windfall when it bounces back?
The magic of options
I'll call this group the "CEO-pay Houdinis." They pulled off the neat trick of managing to make huge amounts while most everyone else was taking pay cuts or, at best, scratching out just a little more than before.
Four other execs at these same companies deserve honorable mentions because they scored anywhere from $14.5 million to $30.8 million on 2009 stock-option grants (see the table below).
The key to this cool trick? Options, which allow a recipient to buy shares at a so-called exercise price, usually the price at the time an option is granted. If the stock rises, the taker can exercise his option at this "strike price" and pocket the difference. The lower the exercise price, the better the deal for the recipient.
The problem with this is that options cost investors lots of money. Options create shares; more shares in the market means the shares that investors already own become worth less. (For more on this, read "How stock options rob shareholders.")
It's worth noting that all five CEO-pay Houdinis sit on, or chair, the very boards that design their pay packages. I'll assume that makes relations fairly cozy. When the markets were near the lows of 2009, their boards issued large stock-option grants at furious paces, often replacing older options that had been basically worthless because of much-higher exercise prices.
Then, as the market rebounded -- it jumped about 50% from March 2009 through the end of May 2010 -- these CEOs enjoyed a bonanza. Indeed, because of these supersized slugs of options, the reported pay decline in 2009 "is largely an illusion," says Patrick McGurn of proxy adviser RiskMetrics Group.
CEO pay windfalls: Stock options rise on market rally - MSN Money
During a recession in which many Americans have had to live without pay raises -- or even jobs -- we've at least been able to take some comfort in knowing that high-level execs shared our pain.
CEO pay supposedly declined about 11% in 2009, to an average of $7.2 million at Standard & Poor's 500 Index ($INX) companies, according to The Associated Press.
Discover the highest-paid CEOs
But those numbers hide a little secret about pay in a lot of corner offices: Despite the dismal economy, many CEOs had one of their best years ever.
Some of the biggest winners scored huge amounts, thanks to well-timed stock-option grants that let them buy stock near the prices of the market's March 2009 lows -- and then watch the value of those stocks soar in one of the biggest bull runs in history.
Are CEOs paid too much?
Go to CNBC
The top five of these options kings are the leaders of Ford Motor (F, news, msgs), Starwood Hotels & Resorts Worldwide (HOT, news, msgs), American Express (AXP, news, msgs), Nabors Industries (NBR, news, msgs) and Tenet Healthcare (THC, news, msgs), according to data compiled for me by Equilar, an executive compensation research company based in Redwood Shores, Calif.
Find a broker and trade online now
They're sitting on windfalls of $25 million to $48.8 million for a year in which most of them cut jobs, downsized businesses, bragged about their own austerity -- or all three. To be fair, their stocks did rise faster than the market in the rally, but only after setting multiyear lows on their watch.
That prompts a question: If a company's stock falls on a CEO's watch, does he deserve a windfall when it bounces back?
The magic of options
I'll call this group the "CEO-pay Houdinis." They pulled off the neat trick of managing to make huge amounts while most everyone else was taking pay cuts or, at best, scratching out just a little more than before.
Four other execs at these same companies deserve honorable mentions because they scored anywhere from $14.5 million to $30.8 million on 2009 stock-option grants (see the table below).
The key to this cool trick? Options, which allow a recipient to buy shares at a so-called exercise price, usually the price at the time an option is granted. If the stock rises, the taker can exercise his option at this "strike price" and pocket the difference. The lower the exercise price, the better the deal for the recipient.
The problem with this is that options cost investors lots of money. Options create shares; more shares in the market means the shares that investors already own become worth less. (For more on this, read "How stock options rob shareholders.")
It's worth noting that all five CEO-pay Houdinis sit on, or chair, the very boards that design their pay packages. I'll assume that makes relations fairly cozy. When the markets were near the lows of 2009, their boards issued large stock-option grants at furious paces, often replacing older options that had been basically worthless because of much-higher exercise prices.
Then, as the market rebounded -- it jumped about 50% from March 2009 through the end of May 2010 -- these CEOs enjoyed a bonanza. Indeed, because of these supersized slugs of options, the reported pay decline in 2009 "is largely an illusion," says Patrick McGurn of proxy adviser RiskMetrics Group.