Michael Ward of CSX (!) at $36 million per year. Who would have thought, based on the amount of static CSX gets in the media, and on this forum.
That’s really quite a lot, even by the megalomaniacal standards of American business. Rex Tillotson of Exxon gets away with $30 million a year; and some of the “little” shareholders are trying to cap that.
Sadly, though, in CSX’s case executive compensation seems to have more to do with share price than with actual improvements to or expansions of service, or improved safety.
Why should a railroad be any different than any other business in this regard? An appreciation in the share price seems to be a prime determinant in how well management is running the business.
Why the surprise? Somehow, that just seems to fit right in.
Because he’s doing the best job, or because he has the hardest job in railroading?
The major problem with tying a top executive’s salary to performance either directly (salary) or indirectly (cheap stock options) is that the executive then faces a huge temptation to monkey with shell corporations and push the envelope of ethical accounting if such maneuvers will “keep share price up”. I can’t suspect anyone of anything, but there have been numerous American corporations that made the stats look better by releasing, say, “consolidated” revenues and not core revenues – just one thing out of many, many tricks and gizmos available to American big-business when the tail starts wagging the dog. Oversight? It turns out it can be surprisingly easy to pull the wool over reporters’ and analysts’ eyes. The books The Wreck of the Penn Central (in detail) and Main Lines (in less detail) relate just what the brass did to Penn Central – in that case they were doing things every bit as bad as Enron 30 years later.
There are healthier indicia to tie in with executive salaries – ton-miles, say, or operating ratio. In our system, a “superstar” CEO will get a “superstar” salary for the same reason that Michael Jordan’s pay in his last few years was many, many times that of a rookie NBA player. I think most people understand that. But if a $30 million salary is way out of line with the competition (NS, CN, BNSF), or based on non-essential indicia of the kind that I’ve touched on above, then he just might not be worth it.
Railway Age April 2008 issue.
http://www.railwayage.com/B/xpov.html
Apparently someone thinks he’s doing a good job.
Sometimes what appears in the media, and on this or any forum, may not give a complete and true picture.
In any case, $36 M is a lot of money. The part I don’t like, at any company not just CSX or railroads, is that the people at the top are valued and considered worth the compensation, while the people who do the work to bring in the money are considered as so much deadwood, something to be eliminated or replaced.
Jeff
What are the components of the $36 mil? It would make some difference if it was all just basic salary or a lot of it was some kind of performance bonus for previous year(s). And, yes, I’m aware that some bonus systems set the achievement bar at the “barely warm & breathing” level.
The article about CSX and TCI hedge fund in the Feb. 2008 issue of Trains Magazine says that in 2005, his pay was changed from being tied to improvements in operating income, to changes in the operating ratio. TCI seems to think he is working the system to enhance his own pay(?)
Like TCI is not ‘working the system to enhance’ their position.
Figures Lie…Liars Figure! Give an accountant a stack of raw figures and he can prove any side of the same argument.
Thirty-six million dollars sounds galling, and no corporation should throw that away, but supposing the corporation had 360,000 employees? That’s worth a hundred dollars apiece per employee per year if divided up “equitably.”
I was at the CN annual meeting today in Chicago. Hunter Harrison, CEO had total 2007 compensation of $11,826,322 which included salary, bonus (2007 bonus was $0 as the company failed to meet stated goals), restricted shares, stock options, long term incentive grants, signing bonus restrictive stock pro rated yearly, pension plans, benefits, and other annual compensation.
I have mixed opinions on executive compensation. Overall, I believe it is too high. However, the majority of the compensation is based on restrictive stock or options, which is tied to the performance of the stock. I think these have gotten out of hand. You now see the stock options being phased out due to the manipulations the past few years.
Lets face it. If you are going to attract good talent, you have to pay. Thus, a very good executive will always be in demand. How does one value the compensation of the Exxon Mobile CEO? Barack Obama is now running ads saying he wont put up with such payments to the CEO, naming the XOM CEO by name. Yet, he fails to mention Ophrah Winfrey who according to Parade Magazine (the Sunday paper magazine, listed as making $250 million last year, or Fifty Cent who made $33 million last year). BTW I am not mentioning these two due to their race in comparison to Senator Obama…Steven Spielburg checked in at about $100 million.
So…compare Mr. XOM CEO vs Ms. Winfrey or Mr. Cent or Mr. Spielburg and ask yourself why is he being targeted?
ed
I’m not saying I agree with TCI, only that they are using that as a reason to raise some dust.
Show me someone who can improve the operating ratio of a capital-intensive business that is flung across half the country.
Show me someone who can deal with all the levels of government that railroads must deal with.
Show me someone who can deal with organized shipper groups such as the utilities and chemical manufacturers.
Show me someone who can improve shareholder earnings.
Show me anyone who can deal with unions.
Show me someone who in the midst of doing all the above can deal with an unsolicited (and hostile) takeover attempt.
That person is worth $36 million. Anyone who thinks he’s not worth it and is willing to apply for the position and take less money for doing it as capably should do so.
John Timm
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Definition: operating ratio
Definition 1
A company’s operating expenses divided by its operating revenues.
[courtesy Investorwords.com]
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In operating ratios, the lower the better
ed
My mistake and I am amending my post to reflect that. That makes Hunter Harrison ($11.8 mil salary) and CN’s superior operating ratio (68%) a relative bargain compared to CSX (77%) and Michael Ward’s salary (over three times as much).
Glad you caught my factual goof. I am sorry.
al