One of the nation’s highest-paid executives is sitting on a massive pile of stock options and enjoys a private jet wherever he goes. Gary Rivlin on John Hammergren, the 1 percenter you’ve never heard of.
But then Reda, a New York–based compensation consultant who sometimes puts together mega-pay packages on behalf of publicly traded behemoths, learned about John Hammergren, the CEO of the McKesson Corp., a giant medical-supply company in California. Hammergren is the $145 million man, top dog on the latest listing of the country’s highest-paid chief executives.
But so what if he made $145 million in a single year? The lion’s share of that money was the slew of stock options Hammergren cashed out after holding them for years. “That’s what you want,” Reda says. A new CEO gets a fat basket of stock options, and if the company does well, the CEO also prospers. “As long as the original stock-award amounts were reasonable, it makes no difference if it ends up providing a huge payoff,” Reda says.
Then I read him Hammergren’s annual total compensation payouts, taken from the company’s public filings with the Securities and Exchange Commission: $46 million in 2011; $55 million in 2010; $37 million in 2009; another $41 million in 2008. Hammergren hadn’t founded the company. Wall Street analysts covering McKesson can tell you of the disappointments and miscues that have marked his tenure. But his haul in the 13 years he has been running McKesson? More than $500 million, according to data provided by Equilar, an executive-compensation data firm.
John Hammergren, CEO of McKesson Corp., George Nikitin / AP Photo
For a moment, Reda is silent. “$40 million, $50 million a year is excessive, no matter what the yardstick,” he says. The average pay package for a CEO running a top 100 company these days, Reda says, is around $12 million. That includes everything, from salary to stock awards to contributions to a retirement account. Yet last year McKesson contributed more than $13 million just to Hammergren’s pension, according to company documents. Among the other perks he enjoys: a chauffeur to drive his company car, free use of the corporate jet for personal travel, and an extra $17,000 a year to pay for a financial planner because handling all those hundreds of millions is no doubt complicated stuff.
“He doesn’t leave anything on the table, does he?” Reda asks.
John Hammergren isn’t necessarily the highest-paid CEO in America. Sure, he topped the list when GMI, a well-regarded research firm, published its 2011 annual CEO survey in December. But that’s because he cashed out $112 million in accumulated stock options in a single year, according to GMI. He ranked 14th on Forbes‘s 2011 executive-pay list and 22nd on its 2010 ranking. And of course there are CEOs like Oracle’s Larry Ellison and Google’s Larry Page. Page has a net worth north of $15 billion, and Ellison is worth more than $30 billion, but then each was a cofounder of the company he runs.