Health-Related Execs Most Richly Rewarded Among Those at 45 Public Companies

By Daniel Lee, The Indianapolis Star

Jun. 3–If you want to make big bucks in Indiana, it pays to lead a health-care company.

Five of the seven highest-paid chief executives of the state’s publicly traded companies come from health care, underscoring the industry’s clout nationally as well as its importance to the Indiana economy.

The $9.25 million average compensation of those five executives was nearly four times the Indiana average, reflecting not only the size of the companies they lead, but the rapid growth in the health-care industry.

However, handsome pay packages extended far beyond health care, according to an analysis conducted for The Star by compensation-research firm Equilar, of San Mateo, Calif.

In 2006, 27 of 45 Indiana companies paid their CEOs at least $1 million in total compensation — which includes salary, bonus and other short-term incentive pay, as well as stock, stock options and miscellaneous pay.

The CEOs made an average of $2.4 million, with the bulk of that coming from cash incentives and stock options and grants, according to Equilar.

With pay and stock totaling $14.5 million in 2006, Larry Glasscock — who retired Friday as WellPoint’s chief executive — was No. 1 in total compensation among 45 CEOs.

Glasscock, who helped the Indianapolis health insurer grow from a regional player into a national powerhouse since joining WellPoint predecessor Anthem in 1998, was not the only one with an annual payday of $1 million or more.

Eli Lilly and Co. CEO Sidney Taurel ranked No. 2 with total compensation of $11.8 million last year, followed closely by the $11.6 million earned by J. Raymond Elliott, the recently retired chief of Warsaw orthopedics company Zimmer Holdings.

Large companies, not surprisingly, also dominate the list of top-paid CEOs. WellPoint, Lilly and Cummins are the state’s three largest public companies in terms of revenue, according to Fortune. Zimmer ranks No. 6.

Equilar’s look at 194 CEOs of S&P 500 companies found that executives in their jobs at least two years made an average of $10.5 million in 2006, an increase of 6 percent.

The highest-paid CEO in the U.S. last year was Lloyd Blankfein, who received $54.3 million in cash and stock from Goldman Sachs.

The Securities and Exchange Commission this year started requiring companies to provide a more detailed explanation of executive compensation practices. The changes, for instance, reveal greater detail about the multiple layers of compensation given to top executives.

But in some ways, it’s less clear. In addition to bonus pay, there now is a category of “non-equity incentive compensation” — typically cash goodies that showed up in the bonus category under the old system. Stock options also are accounted for differently.

Because of the change, it’s harder to compare pay packages from one year to the next. But here’s what is clear about executives’ pay:

Short-term cash compensation declined 1 percent to an average of $1 million.

In salary alone, the Indiana CEOs averaged $549,622 last year. Based on a hectic 60-hour workweek, that’s about $176 an hour.

The average Indiana worker made $19.68 an hour last year, according to Bureau of Labor Statistics data.

But are the highest-paid CEOs earning their way to the top? Cummins and Hillenbrand showed big improvement, while Lilly’s results were mixed.

Tim Solso, CEO of Columbus-based Cummins, had $9.2 million in total compensation in 2006, a year in which the diesel-engine maker’s profit climbed 43 percent and its stock price gained 33 percent. But Solso’s short-term cash compensation declined 10 percent.

Peter Soderberg, who became Hillenbrand’s chief executive in March 2006, rounded out Indiana’s top five with total pay of $4.9 million.

After recording a loss in 2005, Hillenbrand posted a profit in 2006 and saw its stock price rise 18 percent.

Under Soderberg’s leadership, Hillenbrand recently announced that the company would split its two business units, Hill-Rom and Batesville Casket, into two independent companies.

“If shareholders can see that performance can be delivered to them, then typically they’re not concerned about high levels of CEO compensation,” said Paul Hodgson, senior research associate for The Corporate Library, a corporate governance research firm.

Hodgson quickly added that many investors, however, perceive a disconnect between the growth in CEO pay and the value those executives are producing for shareholders.

At some companies, shareholders are asking for a voice in compensation matters. Motorola shareholders passed such a measure last week, allowing stockholders to vote on compensation annually, although it would be nonbinding.

Lilly, for instance, was one of a dozen companies named in The Corporate Library’s “Pay for Failure” report.

Last year, Taurel’s salary, bonus and other short-term cash compensation rose 15 percent to $4.4 million. Lilly’s profit rose 34 percent, but its stock price fell 5 percent.

Hodgson noted that Lilly has underperformed its peers in the pharmaceutical industry in terms of total shareholder return over the past five years. “They compensated Sidney Taurel very handsomely during this period,” he said.

Investors aren’t the only ones paying close attention to how much the boss makes:

Last year Lilly credited Taurel for the company’s “strict headcount control,” allowing the drug maker to reduce its ranks by nearly 2,000 employees, or about 5 percent, mostly through attrition.

“It is not just coincidence that Sidney’s tenure as CEO is the longest among current pharmaceutical CEOs — this has occurred because he has exhibited strong and consistent leadership during a time in which other pharma companies have faced significant struggles and experienced senior management turnover,” Lilly spokesman Philip Belt said in an e-mail.

Belt also said Lilly’s stock recently hit a 52-week high. During Taurel’s nine-year tenure, Lilly stock has increased 10 percent, but the Amex Pharmaceutical Index has increased 8 percent, he said.

At WellPoint, where former CEO Glasscock made $14.5 million in 2006, profit grew by 26 percent last year. But the company’s stock was essentially flat.

At the company’s shareholder meeting recently, WellPoint faced protesters gathered outside its headquarters on Monument Circle who complained that WellPoint’s profit and executive pay come as the cost of health insurance and the ranks of the uninsured continue to rise.

Daniel P. Hann, who served last year as interim CEO of orthopedics maker Biomet, in March retired suddenly amid a scandal over how the company priced its stock options. Yet he was paid $3.5 million in 2006, ranking him No. 7 on the list of Indiana’s highest-paid corporate chiefs.

So who was at the bottom of the Indiana CEO pay list last year?

Pete Kissinger, who made $136,085 as CEO of West Lafayette-based Bioanalytical Systems, which provides contract services and research for pharmaceutical and biotech companies. BASi, with $43 million in revenue last year, is a small corporate player.

“When I joined the faculty of a university, I took a vow of poverty and have continued that at BASi for 33 years,” wrote Kissinger, also a longtime analytical chemistry professor at Purdue University, in an e-mail. “I’ve never needed a lot of money to keep score. For one thing, I’ve not had the time to spend it.”

However, Kissinger said he does not necessarily begrudge those at the top of the heap.

“Those who are really good at it deserve just rewards for delivering for shareholders,” wrote Kissinger, who stepped down as CEO last year but remains BASi’s chief scientific officer and chairman of the board.

“On the other hand, I’ve never grasped the concept of being fired by a board and receiving a reward of some $100 million. I’d love to be fired in this fashion so I could up my contribution to United Way.”

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