Ford Cuts Pay for CEO After Falling Short of Targets

Ford Motor Co. (F) cut Chief Executive Officer Alan Mulally’s compensation by 29 percent last year after the second-largest U.S. automaker fell short of its targets for profit, cash flow and market share.

Mulally received $2 million in salary, $3.95 million in bonus and $15 million in stock, options and other compensation, Dearborn, Michigan-based Ford said yesterday in a regulatory filing. That compares with $2 million in salary, $5.46 million in bonus and $22 million in other compensation for 2011.

Ford is restructuring its European operations and adding plants in China to curb losses in those regions, which drag on the company as it relies on profits in North America. Ford achieved just 3 percent of its target for global market share and 32 percent of its goal for automotive operating cash flow. That reduced the bonus paid to Mulally, 67, who has received $162 million in compensation since joining Ford in 2006 from Boeing Co. (BA), according to data compiled by Bloomberg.

“To the mass majority of people, these are enormous numbers,” David Whiston, an equity analyst with Morningstar Inc. (MORN) in Chicago, said in a phone interview. “But is it excessive? It really depends on who you ask. Ford shareholders, especially those that bought in the low-single digits, are probably thinking Mulally’s worth every penny.”

Photographer: Jeff Kowalsky/Bloomberg

Alan Mulally, president and chief executive officer of Ford Motor Co., center, with employees working on the assembly line at the company's Dearborn Truck Plant in Michigan, on Dec. 13, 2012. Close

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Photographer: Jeff Kowalsky/Bloomberg

Alan Mulally, president and chief executive officer of Ford Motor Co., center, with employees working on the assembly line at the company's Dearborn Truck Plant in Michigan, on Dec. 13, 2012.

Ford’s stock, which traded below $2 four years ago, rose 20 percent last year, outpacing the Standard & Poor’s 500 Index’s 13 percent climb. The shares rose 0.1 percent to $13.45 at the close in New York yesterday. Ford last year reclaimed investment-grade credit ratings, paid out its first dividend since 2006 and reported net income of $5.67 billion.

Succession Planning

Ford shuffled its leadership team last year to prepare for the eventual departure of Mulally, who has engineered a turnaround by globalizing Ford’s operations, cutting costs and overhauling its lineup with more fuel-efficient models. Ford on Nov. 1 named Mark Fields chief operating officer, positioning him as front-runner to take over as CEO after at least 2014.

In addition to the compensation reported in proxy statements, Ford gave Mulally $11.7 million in stock this month, $58.3 million last year and $56.6 million the year before as a reward for the automaker’s turnaround. Those awards boost Mulally’s payout to almost $289 million.

Executive Chairman Bill Ford received total compensation of $14.8 million, up 2.6 percent from $14.5 million in 2011. The 55-year-old great-grandson of founder Henry Ford received $2 million in salary, $1.13 million in bonus and $11.7 million in stock, option awards and other compensation.

‘Major Accomplishment’

Since replacing Bill Ford as CEO, Mulally has instituted a global product development plan called One Ford to boost profits by selling the same models globally, rather than different versions for various regions. Ford has earned $35.2 billion the past four years after losing $30.1 billion from 2006 through 2008.

“It’s a major accomplishment for him to have come in from outside the auto industry and unify Ford and get rid of all those fiefdoms that they had regionally,” Morningstar’s Whiston said of Mulally. “They’re bringing the company up to its true capabilities. Before, there was a lot of waste.”

Ford disclosed in a filing last month that it will pay Mulally another bonus after his employment ends. The payment will be based on the company’s contributions to Mulally’s company retirement and benefit equalization plans, according to the filing, which didn’t provide further details.

Automaker CEOs

Mulally is probably the world’s highest-paid automotive CEO. Volkswagen AG (VOW), the largest European automaker, paid CEO Martin Winterkorn 14.5 million euros ($18.9 million), 17 percent less than in 2011. Toyota Motor Corp. (7203), the world’s largest automaker, paid President Akio Toyoda 136 million yen ($1.43 million), according to data compiled by Bloomberg. Nissan Motor Co. paid CEO Carlos Ghosn $10.3 million.

While General Motors Co. hasn’t reported CEO Dan Akerson’s 2012 compensation yet, the largest U.S. automaker, said last month that his target remains $9 million a year. In 2011, he received $7.7 million.

At Ford, Fields, 52, became COO in December after leading the company’s North American and South American automotive operations since late 2005. In his new post, the 23-year company veteran now runs a weekly business-review meeting that Mulally instituted at Ford. Fields was awarded total compensation of $8.85 million for last year, a 0.2 percent increase from 2011.

North America

Rising demand for F-Series pickups in Ford’s home market last year paced a record $8.34 billion annual pretax profit for the company’s operations in North America, which countered overseas losses. The North American results also led to profit sharing of about $8,300 on average to Ford’s 45,300 hourly workers represented by the United Auto Workers union, a record payout that was made March 14.

GM (GM), the largest U.S. automaker, is paying its hourly workers as much as $6,750 in profit sharing, while Chrysler Group LLC’s will get about $2,250.

Ford began paying a quarterly dividend of 5 cents a share in March of last year and said in January that it would double the payout. Moody’s Investors Service raised Ford to investment grade in May after Fitch Ratings lifted the company to the status in April. Standard & Poor’s ranks Ford’s debt BB+, the highest level of speculative grade, with a positive outlook.

Ford scheduled its annual meeting for May 9 in Wilmington, Delaware. Shareholders will vote for the ninth consecutive year on a proposal to strip the Ford family of its 40 percent voting control of the automaker and move to one vote per share. The measure is opposed by Ford’s board, which includes two Ford family members, Bill Ford and Edsel Ford II.

To contact the reporter on this story: Craig Trudell in Dearborn, Michigan, at ctrudell1@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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