AK's CEO bonuses surviveBy Thomas Gnau, Journal Business
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More attention is being paid to how corporate chief executives
are paid — and some of that attention is turning to AK Steel Corp.’s
A recent Wall Street Journal story examined how corporations with
“ailing pension plans” are protecting bonuses paid to the highest
AK saw pension expense contributing to a loss of just more than
$500 million for the year in 2002.
But executive bonuses were “unharmed” by this loss, the newspaper
reported, with Wardrop, AK’s chairman and chief executive, receiving
$7.7 million in two years.
AK’s most recent proxy statement, filed in April, reports that
Wardrop in 2002 received a base salary of $1.3 million, an annual
bonus of $2.6 million, restricted stock awards of just more than
$1.2 million and a long-term payout of just more than $2.2 million
for AK’s performance in a three-year period ending Dec. 31, 2002.
In 2001, Wardrop’s base salary was $1.25 million, the proxy said.
He received a bonus of $750,000 that year, restricted stock of
$735,000 and a long-term performance payout of $2.125 million.
“Notwithstanding a net loss for book purposes, the (company)
approved the payment of bonuses to all annual management incentive
plan participants based upon safety, quality and financial
performance, which substantially exceeded performance targets for
2002,” the proxy said.
Excluding pension expense, the proxy said AK saw an operating
profit per ton of steel shipped higher than its competitors last
AK Vice President of Public Affairs Alan McCoy declined to
Wardrop’s compensation doesn’t seem inordinate, however, to
independent steel industry analyst Charles Bradford. Bradford said
2002 executive pay reflects 2001 corporate performance.
“I think the actual pay is quite low compared to other
industries,” Bradford said.
He said pension performance is suffering across the corporate
world because equity markets have trended down in the last three
years. And AK doesn’t manage that money, he added. Independent money
Still, AK’s pension performance “is not as bad as most. I mean,
all you have to do is look at the Standard & Poor’s Index,”
He added: “What does he (Wardrop) have to do with the pensions?
They have a pension system that hasn’t changed.”
But Paul Hodgson, senior research associate with the Corporate
Library — an independent research firm focused on corporate
governance — noted that Wardrop’s long-term performance payout takes
2002 performance into account.
Hodgson called Wardrop’s pay “out of line.” Hodgson pointed to
U.S. Steel CEO Thomas Usher, who received a base salary of $1.1
million, and an annual bonus of $1.243 million, in 2002. And Nucor’s
Daniel DiMicco saw a base salary of $494,685, with a bonus of
$321,545, in 2002, Hodgson noted.
STANDARD & POOR’S steel industry analyst Leo Larkin believes
that nearly every steelmaker chief executive, except DiMicco, is
Pointing to Wardrop, Larkin said: “It (his pay) certainly makes
no sense considering what has taken place under his stewardship.”
U.S. Steel, with about 24,000 employees in steel-related work, is
an integrated steelmaker like AK, making steel from raw materials
like iron ore. Nucor, with 9,800 employees, is a mini-mill, which
melts scrap metal and has a different approach to business.
Middletown-based AK has about 10,000 employees, including about
4,000 in Middletown.
U.S. Steel and Nucor both have larger market capitalizations than
AK. A “market cap” is the total dollar value of a publicly traded
company’s outstanding shares and is often cited to measure corporate
Ed Shelley, president of Armco Employees Independent Federation,
which represents more than 3,000 AK workers in Middletown, said his
main concern is not the size of Wardrop’s paycheck.
“My principal concern is the viability of this company, and the
benefits, the standard of living of the workers and the retirees,”
Recently, AK asked AEIF representatives to talk about ways to
make the company more competitive. An initial meeting was held
Thursday, and another is tentatively set for next Thursday.
For AK, this year and last have been challenging. The company has
asked residents to write Gov. Bob Taft, seeking relief from a
federal and state lawsuit against the company alleging environmental
violations. And the company has said an array of pressures could
lead to the end of “hot-end” steelmaking in Middletown — a loss of
approximately 1,000 high-paying jobs.
Meanwhile, the company’s stock price has fallen from a high of
$12.81 on June 28, 2002, to a low of $2.75 on April 30.
In terms of shareholder return, “They (AK) certainly have not
outperformed their peers or the S&P (Standard & Poor’s)
500,” Hodgson said.
“It’s kind of scandalous in a way,” Larkin said.
Recently, though, AK’s stock has shown some signs of relative
strength, closing at $3.55 Friday, up three cents from Thursday.
Wardrop and AK have been credited for holding their own in a
tough climate for the steel industry. Fortune magazine last summer
lauded AK for having “boosted efficiency while focusing on high-end
steel for the automakers.” AK ranks 376th on the Fortune 500 list.
A Corporate Library study found median bonuses for CEOs running
1,019 public companies rose 9 percent in both 2001 and 2002, to
$451,000. Long-term incentive payouts went from a median of about
$500,000 in 2001 to more than $900,000 in 2002, the study found.
Total cash compensation for 2002 rose nearly 17 percent to a
median of $1.2 million, the Corporate Library found.