San Diego’s cost of living tops the nation’s by 50 percent, but household incomes are only about 20 percent higher. Ergo, squeezed San Diegans live on “psychic income,” or pay a “sunshine tax.” But according to a new study, some locals are not paying that tax: the chief financial officers of large corporations. They are doing better than their counterparts who live in nasty climates.
Chief financial officers, or CFOs, are companies’ chief bean counters. Former San Diegan Graef Crystal, one of the nation’s reigning experts on executive compensation, recently wrote on CFO pay for his website, Graefcrystal.com. He studied 2007 pay for 578 CFOs in companies that the stock market values at $3 billion or more. Bottom line: they are raking in good bucks.
I asked him to figure out how the remuneration of head bean counters at five large San Diego companies compared with pay of their counterparts elsewhere. He considered two factors for comparison: the size of the company as measured by 2007 revenue, and the pay risk in the CFO’s pay package — that is, what percentage of total pay represented stock options, which are more hazardous than, say, a nice fat bonus.
William Keitel, CFO of digital wireless telecom superstar Qualcomm, raked in $6.5 million last year. According to the size of the company and the pay risk, “He should have made $4.6 million,” says Crystal. So his pay was 41 percent above the market. Qualcomm stock rose 17.8 percent during the period of measurement, while the general market was going up 16.4 percent.
Sempra Energy CFO Mark Snell was paid $4 million, but he should have made $3 million based on size and risk, says Crystal. On the other hand, the stock went up at more than twice the rate of the overall market.
David Hoffmeister, CFO of biotech Invitrogen, made $2.2 million, a bit ahead of the $2 million he should have made by Crystal’s reckoning. But Invitrogen stock beat the market by 60 percent. “That’s a fantastic performance,” says Crystal.
Christian Henry, CFO of biotech Illumina, made $3.9 million last year, 82 percent over the market as Crystal calculates it. On the other hand, Illumina stock rose ten times more than the overall market.
There is one exception: Brett Sandercock, CFO of ResMed, which makes products for sleep-disordered breathing. Sandercock, based in the company’s Australian office, brought home $1.2 million, which is 46 percent below the market. ResMed stock declined 12.1 percent during the period, while the overall market was going up about that much. “Lousy performance and not good pay,” says Crystal. Companies respond that stock market performance is only one variable in setting an executive’s pay.
A CFO’s pay tends to be too high if the chief executive is also overcompensated. The top boss’s pay is like “a 4000-horsepower vacuum cleaner which sucks into its nozzle any pay package that gets close to the nozzle,” says Crystal. “Unfortunately, a 4000-horsepower vacuum cleaner isn’t enough to even mess up the hair of the worker on the line.” Qualcomm’s chief executive pulled in more than the market, but not much more.
Invitrogen’s chief executive, Gregory Lucier, in pulling down $29 million, made a whopping 583 percent above the market based on company size and pay risk, says Crystal. But the company’s stock has to meet certain future targets. Lucier is not supposed to get another award until the end of next year. Crystal tends to pooh-pooh such declarations, stating that boards of directors often forget that they said they wouldn’t dole out any more for a long period. “You grant it, I count it,” says Crystal.