CINCINNATI -- Cincinnati Bell Inc. dodged an embarrassment bullet during its May 6 shareholder meeting.
That’s when owners of the telecom company's stock voted 51.65 percent in favor of its pay plan after questions were raised about a $9 million bonus awarded to former CEO Jack Cassidy. The bonus made Cassidy, who retired one month into the 2013 fiscal year, the fourth highest paid local executive last year, according to a WCPO analysis of executive compensation that will be featured in a series of stories this week.
Executive pay practices are revealed in bone-dry documents full of numbers and obscure language. But the Cincinnati Bell shareholder meeting was a reminder that there can be drama in these yearly disclosures.
Each year, shareholders of publicly-traded companies are invited to cast a yes or no vote on the paychecks of company bosses.This is strictly an advisory vote. Companies aren’t required to modify their plans if shareholders reject them. But negative votes carry a stigma that makes directors uncomfortable and they sometimes lead to shareholder lawsuits. In fact, Cincinnati Bell was sued after losing a say-on-pay vote in 2011. The company settled the complaint by agreeing to provide better disclosure.
Most companies breeze through these votes with affirmative tallies in excess of 90 percent. Only three companies in the Russell 3000 stock market index have lost say-on-pay votes more than once in the last four years, according to an April 30 report by Semler Bossy Consulting Group LLC.
Cincinnati Bell came within an eyelash of joining that ignoble group this year.
“A significant shareholder has decided to vote in favor of the compensation plan,” Cincinnati Bell General Counsel Christopher Wilson told a crowd of about 30 directors, employees and shareholders who gathered at the Queen City Club for the company’s annual meeting. “That means a favorable vote in excess of 50 percent.”
Chairman defends the bonus
Cincinnati Bell Chairman Phil Cox said shareholders had lots of questions about Cassidy’s bonus. Cox said it was a reward for steering Cincinnati Bell through a decade of financial uncertainty, as the company was “not far away from bankruptcy” when Cassidy took the helm in 2003.
Rather than let its $2.3 billion debt load hamstring the company, Cassidy built a new data center business that was spun off in 2013 into a new public company, Cyrus One Inc. Bell retains 69 percent ownership of Cyrus One, an investment it values at $1 billion.
“The value he created, starting a new business, righting the ship when we could have been going down, not taking a salary increase for a number of years, those were all factors,” Cox said. The bonus “could have been a much bigger number. Shareholders in essence said, ‘We don’t care what you pay the guy. Is he creating value?’”
Cox was “glad we got through it,” even it wasn’t a landslide victory.
“We passed the say-on-pay vote,” Cox said. “I would say that says everything.”
Well, maybe not everything.
The WCPO analysis shows Cassidy was Cincinnati’s fourth-highest paid executive in 2013, ranking ahead of Kroger CEO Rodney McMullen, whose company is 30 times bigger than Bell in market capitalization, or the total value of all company shares.
Two Cincinnati Bell executives, former Chief Financial Officer Kurt Freyberger and General Counsel Christopher Wilson, ranked second and third on the list of executives with the biggest pay raises.
RELATED PHOTOS: Executive Pay 2013 Top 10 List: Highest paid executives
Cincinnati Bell had the region’s 10th most expensive board, paying its directors a combined $1.9 million.
Chairman Phil Cox ranked 5th in total director pay with $390,000 in cash and stock.
Cincinnati Bell ranked last in total shareholder return among Cincinnati’s public companies in the 2013 fiscal year. It’s -35 percent performance means a $10,000 investment at the start of 2013 would have been worth $6,500 at year end.
“That company would be better off sold,” said Bill Cowgill, who owns about 2,000 Cincinnati Bell shares and runs Elysian Investment Advisors in Anderson Township. “Seems to me only the people who are benefiting are the officers and directors.”
Cassidy, 59, declined to comment for this story.
Median pay up 12.5 percent for Tri-State CEOs
And so it goes in the staid world of executive compensation, where lots of money is at stake.
WCPO’s annual compensation analysis allows you to explore the pay practices of 33 Cincinnati-based companies in a variety of ways.
More than $320 million in cash and stock awards can be found in the interactive database (see below) with compensation details for 166 executives.
- The average Tri-State CEO made $4.2 million in 2013, or 91.5 times the average worker salary of $45,510, according to figures from the U.S. Bureau of Labor Statistics. Former Kroger CEO David Dillon ranked first in this category, with a pay package worth 488 times the average grocery employee.
- Most local CEOs made less than 100 times the average worker in the industries where their companies compete.
- The median pay of Tri-State CEOs increased 12.5 percent to $2.6 million in the 2013 fiscal year. That compares to an 8.8 percent increase in median pay among big-company CEOs nationally, according to a study by Associated Press/Equilar. That study showed median pay for bosses in the S&P 500 was $10.5 million.
- Beyond CEOs, WCPO’s searchable database for executive pay includes 92 bosses who made at least $1 million in 2013. That’s up from 91 last year.
- Sixteen executives exceeded $5 million in total compensation, down from 19 last year.
- Median shareholder return for 32 Cincinnati-based public companies was 31 percent, slightly lower than the 32.39 percent achieved by S&P 500 companies. Fifteen local companies did better than the S&P 500.
What shareholders want
For many shareholders, the key barometer isn’t how much executives make, but whether compensation plans incentivize the right behavior. Which means implementing and executing strategies that increase revenue and profits, driving stock prices up over time.
“They want pay packages to incentivize future performance,” said Ohio State University Law Professor Paul Rose. “They’re much less inclined to support pay packages rewarding past performance … no matter how good it was.”
Rose said companies have gotten better at explaining their pay plans to shareholders, often engaging proxy advisory firms to lobby for shareholder support of “say-on-pay” proposals.
“We’re really in an era of shareholder engagement,” Rose said. “Companies smart about engaging with their large shareholder base and trying to explain what they’re doing.”
That’s led to fewer embarrassing 'No” votes on CEO pay. Institutional Shareholder Services, a leading proxy-advisory firm, conducts research on CEO pay and offers opinions on whether shareholders should vote for or against pay plans.
“We've recommended against roughly 11 percent of say-on-pay votes across the Russell 3000 year-to-date,” said Subodh Mishra, ISS vice president. “By comparison, the figure stood at closer to 14 percent in calendar 2013.”
ISS recommended against Cincinnati Bell’s pay plan in an April 21 report that stated:
“The company awarded a $9-million discretionary bonus to former CEO Cassidy after the IPO of its data center business, during a period of short- and long-term (total shareholder return) underperformance and without adequate rationale for the discretionary nature of the award.”
Ultimately, Cincinnati Bell won its say-on-pay vote, but its 47 percent “No” vote is “a strong signal of shareholder dissatisfaction,” said Professor Rose. It’s sign that Cincinnati Bell “still has much work to do to align its pay practices with shareholders’ views,” he added.
Shareholder Cowgill said the vote doesn’t change his view that Cassidy’s bonus was “horrible” and unwarranted.
Cowgill said Cassidy was “fairly well remunerated” as an executive and did not deserve an “extraordinary bonus” for completing the Cyrus One IPO. He also questions what value shareholders got from the transaction, since the company hasn’t distributed any proceeds of the Cyrus One IPO to shareholders.
Cincinnati Bell has said it plans to sell off its Cyrus One holdings to pay down debt, but Cox told WCPO that a shareholder distribution is possible.
“We’re always looking at any possible opportunities,” Cox said. “It’s our largest asset. We are constantly reviewing the value of that, the timing of extricating that value and how we make that a big win for our shareholders. It’s a discussion that goes on constantly.”
WCPO analyzed compensation numbers from the annual proxy statements to shareholders of 33 Cincinnati-based public companies. S&PCapital IQ supplied numbers for all companies that filed fiscal year 2013 proxies before April 21. It also supplied figures on shareholder return andmarket capitalization, or the total value of all shares at the end of each company’s 2013 fiscal year. WCPO compiled all remaining numbers, including compensation figures for company directors.
WCPO uses the same methodology as Associated Press/Equilar in measuring total compensation, excluding changes in pension plan values. Figures on average worker salaries come from the report: May 2013 National Industry-Specific Occupational Employment and Wage Estimates.
From that report, WCPO pulled average worker salaries from the North American Industry Classification System (NAICS) codes that most closely match each company. NAICS is the standard used by federal agencies to classify businesses in order to collect, analyze and publish statistics tied to the U.S. economy.
WCPO Digital Multimedia Producer Brian Niesz compiled and created the interactive graphic and photo gallery lists.
WCPO Editorial Assistant Jane Andreasik provided research.
WCPO Digital Managing Editor Chris Graves edited this report.