Like their peers throughout corporate America, the auto industry's CEOs profited from low expectations.
Following a difficult 2001, many corporate boards set modest performance goals, says Jan Koors, managing director of Pearl Meyer & Partners, a New York consulting company that specializes in executive compensation.
"People were extremely pessimistic, so (performance targets) were very conservative," Koors says.
When companies exceeded those targets, their CEOs cashed in. According to Pearl Meyer's survey of 200 major companies, the average CEO bonus rose 41 percent last year.
Most automotive CEOs must meet financial goals for net income, return on investment or cash flow to qualify for a bonus.
But at least one CEO benefited from a merciful board. Ray LeBoeuf of PPG Industries Inc. missed his financial performance targets, according to the company's proxy statement. But LeBoeuf still received his $1.2 million bonus.
The company's proxy explained that LeBoeuf had achieved various nonfinancial goals. And in a follow-up statement in response to questions from Automotive News, the company detailed some of those accomplishments.
Among other things, LeBoeuf settled all asbestos lawsuits against the company, and he launched a cost-cutting campaign.
But investors may be growing restive. This year, PPG's shareholders endorsed a nonbinding proposal by the Teamsters union to "expense" stock options. If adopted, PPG would subtract the cost of executive stock options from its earnings.
While expensing would have no impact on cash bonuses, the company's board presumably would hesitate to give executives large batches of stock options. Company spokesman Jeff Worden says PPG's board is considering the Teamsters' proposal.
This year, shareholders of 17 companies have passed resolutions in favor of expensing stock options, reports Institutional Shareholder Services, a Rockville, Md., organization that analyzes proxies.
Some companies did not wait for shareholders to take action. Last August, General Motors volunteered to expense options, and others are likely to follow. The Financial Accounting Standards Board is expected to require all U.S. companies to adopt that practice.
If so, auto executives will feel the pain. Fourteen automotive CEOs exercised stock options last year, and some of the payouts were huge. Dauch of American Axle cashed in options worth $20.6 million, while Borick of Superior Industries exercised options worth $15.8 million.
Shareholders aren't likely to complain too loudly because both companies are solidly profitable. But corporate boards are beginning to seek alternatives to stock options.
Some companies award their CEOs restricted stock, which is ordinary stock with a few strings attached. Generally, the executive must remain with the company for a period of time before the stock is vested.
Unlike stock options, restricted stock can never be "under water." A stock option is considered to be under water when the current stock price is below the option's target price. An executive can sell restricted stock at a profit even if its price has declined. Some corporate activists argue that restricted stock is risk-free, with no built-in performance incentive.
"It's a reward for tenure rather than performance," says Paul Hodgson, a senior researcher for the Corporate Library, a research organization that studies executive compensation. "The value of the reward will increase if the stock price goes up. But it's a very weak link."
Blystone's financial windfall was the industry's largest award of restricted stock. But Ford Motor Co. and GM were also generous. Both companies rely heavily on restricted stock to reward their executives. With the exception of Bill Ford, each of the top executives at Ford and GM got awards of restricted stock.
Ford Vice Chairman Carl Reichardt received restricted stock worth $6.8 million, although some of his shares were awarded in lieu of a salary. GM CEO Rick Wagoner and CFO John Devine each received restricted stock worth $5 million.
As a group, GM's top executives were paid considerably better than their peers at Ford. GM's top five managers averaged $7.1 million in total compensation, while Ford's top executives averaged $2.6 million. Ford's relatively low total was affected by Bill Ford's acceptance of stock options in lieu of a salary.
DaimlerChrysler no longer is required to issue a proxy statement, so the company does not divulge its executives' compensation.