As Company Shares Give Way in '08, Pay of Area CEOs Stays Above Fray

By Thomas Heath
Washington Post Staff Writer
Wednesday, April 15, 2009

The shareholders who own the Washington region's big public companies didn't do very well last year, as most stocks swooned in the downturn. But most of the men and women who run those companies did not suffer proportionately, according to regulatory filings.

Malon Wilkus, chairman of American Capital Strategies, earned $11.9 million last year, down from $13.2 million the year before. But shares of the Bethesda private-equity firm dropped 90 percent last year, racked by the financial crisis.

The executives at the area's two big defense firms, whose stocks also were hammered, rank among the highest paid business leaders in the region.

Lockheed Martin chief executive Robert J. Stevens earned $26.5 million in 2008, down from $30.9 million in 2007, according to filings. Bethesda-based Lockheed earned $3.22 billion last year, and returned more to shareholders than almost all of its industrial peers, according to filings. Even with more than $80 billion in contracts in its pipeline, including the new F-35 Joint Strike Fighter, the downturn has trimmed Lockheed stock to around 60 percent of its 52-week high.

General Dynamics in 2008 paid chief executive Nicholas D. Chabraja $21.9 million, up from $18.6 million the year before. Falls Church-based General Dynamics, which delivered a Virginia-class submarine eight months ahead of schedule and $66 million under budget, earned $2.46 billion in 2008. Chabraja, rated by Institutional Investor as the best-performing executive in his sector, is leaving the job this year, but will remain as chairman. General Dynamics stock, too, has been smacked, closing at $43.93 yesterday, more than 50 percent off its 52-week high last May.

The firms pointed to their regulatory filings or could not be reached for comment yesterday.

A big chunk of these executives' compensation is tied up in stock awards that could earn them millions of dollars in coming years, or nothing at all, depending on how the stock fares. Millions more in annual compensation is tied to pension plans, perquisites such as home security and travel, and incentives tied to long-term performance.

"These are very high-pressure jobs and very complicated businesses to run," said Reena Aggarwal, professor of finance at Georgetown University's McDonough School of Business. "It's not like you can change the compensation structure overnight. These people were hired at a particular time, and at that time, a compensation structure was promised to them."

Still, by most barometers, executives are doing well.

"This proves the old adage about the D.C. area being recession-proof, at least as far as the compensation goes," said Patrick McGurn, special counsel at RiskMetrics Group, which advises large institutional investors on corporate governance.

Some of the biggest earners from 2007 did take pay cuts in 2008. Coventry Health Care chief executive Dale B. Wolf earned $9 million in 2008, compared with nearly $15 million in 2007 after the company failed to meet its earnings-per-share performance targets, according to the Bethesda-based company's filings with the Securities and Exchange Commission. Wolf has since resigned from the insurance provider.

Hotelier Bill Marriott Jr., chief executive of Bethesda-based Marriott International, earned just shy of $10 million last year, which was 18 percent below what he earned in 2007, according to the company.

"In view of the current economic climate and its impact on the company, Mr. Marriott has declined to accept the equity compensation that the board approved for him in February 2009, which would equate to about two-thirds of his total compensation for 2009," the company said in a statement released yesterday.

One of 2007's big winners, Richard D. Fairbank, founder and chairman of McLean-based Capital One Financial, had his pay cut in half in 2008. Fairbank, who has been paid mostly in stock options for many years, received options valued at $9.8 million, according to the company's proxy statement last month. The U.S. Treasury purchased $3.56 billion of Capital One preferred stock under the Troubled Assets Relief Program that will pay dividends to the government of 5 percent for the first five years and 9 percent thereafter.

"Rich Fairbank's compensation remains all-equity, all at-risk and all-deferred, as it has for the past 11 years," spokeswoman Julie Rakes said. "As long as he is CEO, he will not get paid under this plan until taxpayers get their money back."

Some executives did better in 2008 compared with 2007.

Pepco Holdings, the District-based utility holding company, earned $300 million last year on revenue of $10.7 billion. Chairman Dennis R. Wraase, whose company shares dropped by half over the past year, earned $10 million in 2008, an increase over the $8.5 million he earned in 2007, according to filings.

"As is probably true of most companies last year, PHI's stock price did not accurately reflect its financial performance due to the economic crisis and the extraordinary decline in the markets," Pepco spokesman Robert Dobkinsaid. "Ironically, PHI had its best year financially in 2008 from an earnings viewpoint. The company met or exceeded its operating and financial goals, triggering the incentive pay plans that determine total executive compensation for the year."

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