Ticker: Bang for the buck

Our annual ranking of local public-company CEOs’ pay is topped by familiar faces

The third time was indeed a charm for Bill Sheriff.

The CEO of Brookdale Senior Living surged to the top of our latest annual rankings comparing the pay of Nashville-area public-company CEOs to their relative stock valuation. Sheriff and Brookdale have consistently been near the top of our past lists — they were third in 2010 and fourth last year — but moved to the summit in large part because Sheriff’s compensation fell relative to the nursing home chain’s other senior executives.

Sheriff, who has led Brookdale since early 2008, did not get a cash bonus related to the company’s 2011 cash from facility operations and growth in senior housing net operating income, which fell short of board targets. In 2009 and 2010, those payments topped $1.5 million. Without them, the value of Sheriff’s total compensation package fell to about $900,000, less than 13 percent of the total pay given to the company’s top five officers.

That ratio, called the CEO pay slice, is a key measure in our methodology. As in past years, we compiled compensation data and valuation metrics and built our rankings by comparing CEO pay slices to price-to-book ratios relative to companies’ industries. The idea is to point out the Middle Tennessee bosses who get paid appropriately but still create value for investors. Once we crunched our numbers, we built a grade scale using a 75 percent score for the average value.

Like Sheriff, a number of other execs who scored well in past rankings are back near the pointy end of our rankings. Noranda Aluminum’s Kip Smith, tops in 2011, comes in third, trailing Sheriff and HealthStream’s Bobby Frist, who climbed to second from fifth in 2011. Despite a large CEO pay slice, Smith scores well based on Noranda’s high valuation.

The big mover from a year ago was Uzi Yemin at Delek US Holdings, who improved to a B from a D+. Yemin’s pay slice was more than cut in half because three of his lieutenants received stock awards of more than $2 million each. Yemin’s own 2011 pay package was worth almost $2 million, double from a year earlier.
Three of the four executives new to our list scored well. Joey Jacobs at Acadia, Charlie Martin at Vanguard Health and Vern Davenport at M*Modal all are in the top half of our list. The remaining newcomer, Richard Bracken at HCA Holdings, brought up the rear because of the company’s negative shareholders’ equity.

A constructive trend
While Sheriff’s situation is a microcosm with unique variables — and a good portion of the total compensation listed in companies’ proxies points to potential or realizable payments, not actual cash in the bank — his missing out on bonus payments speaks to a decent broader trend in CEO pay.  Todd Rolapp, leader of the executive compensation group at Bass Berry & Sims, said long-term pay is increasingly based on performance rather than simply vesting after a set period of time.

“As stocks stabilize, we are seeing some more continuity. Hopefully, we will get another year of structural improvement,” said 
Rolapp. “Boards also are getting more comfortable increasing targets fairly 
significantly.”

Also contributing to boards’ thinking these days are the so-called ‘say-on-pay’ votes introduced last year as part of the Dodd-Frank reform act. Rolapp said the votes themselves were “fairly inconsequential for the vast majority of companies” in 2011, but the very concept of having investors opine on executive pay is helping board members be more proactive.

“Companies are paying attention,” Rolapp said. “They don’t want to just pass. They want to get 90 percent of the votes.”

More people working to make investors happy? That gets a ‘buy’ rating from us.