When executive compensation isn’t negative

May 3, 2009

Jason Zweig has some very nice things to say about the executive-compensation scheme at Alleghany Corp in his column this week. He talked to the CEO, who didn’t do very well at all last year:

Alleghany pays its long-term incentive awards as “performance shares” that go up or down with the market. Last year, when the stock fell 28%, “the value of my total compensation was negative,” Mr. Hicks says, “as it should have been, since the shareholders didn’t make anything.”

Wow, negative compensation? That’s some clawback! Instead of the company paying Mr Hicks, it seems, Mr Hicks had to end up writing a check to the company. How much did he have to pay? I thought I’d check out Alleghany’s proxy statement to find out.

What did I find? A salary of $1 million in 2008, a bonus of $1.275 million, a stock award of $4.158 million, and various other bits and pieces which add up to total 2008 compensation of $8,223,698. Yes, that’s positive compensation: money paid by the company to its CEO.

So no, Mr Hicks, the value of your total compensation last year was not negative, it was positive. Compensation is how much the company pays you, and if you’re going to talk about negative compensation, then you had better be paying the company. Maybe what you’re talking about is the change in value of your “performance shares” — I daresay they were worth less at the end of 2008 than they were at its beginning. But you still received a very hefty paycheck for doing your job: something over $150,000 per week.

I’m quite stunned that Zweig not only failed to challenge Hicks’s statement, but even put it in his column with no indication that it might be false. I would love to see a company which really did require its CEO to pay back money received in prior years if suddenly everything fell apart. But Alleghany is not that company, no matter what its CEO says.


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