Toyota President Delivers Highest Returns for Lowest Pay
Toyota Motor Corp. (7203) made its name on the value and efficiency of its cars. Its chief executive is earning a similar reputation for his compensation.
While the company generated the highest return last year among the world’s five biggest automakers by sales, President Akio Toyoda, 57, is the lowest-paid chief of the group, earning less than one-tenth as much as his best-compensated counterpart.
Toyoda has led a profit revival since taking control in June 2009, just after the global recession and the surging yen helped spur the automaker’s first annual loss in 59 years. Toyoda, the founder’s grandson, helped the company recover from Japan’s earthquake and tsunami and a recall of millions of cars.
Toyota has climbed 26 percent this year in dollar terms as of today’s close in Tokyo, after the carmaker retook the title of world’s biggest from General Motors Co. (GM) last year. In U.S. currency terms, Volkswagen AG (VOW) has dropped 13 percent in 2013, while GM gained 9 percent, Daimler AG (DAI) added 5 percent, and Ford Motor Co. advanced 13 percent as of the June 24 close of trading in New York and Frankfurt.
“Akio has been tested like no other CEO of Toyota in the last 30 years,” said Maryann Keller, principal at auto industry consulting firm Maryann Keller & Associates in Stamford, Connecticut. Compared to Toyoda, “the competition is overpaid.”
Toyoda’s 2012 pay was 184 million yen ($1.9 million), a 35 percent increase from the previous year, according to a filing with Japan’s Finance Ministry yesterday. The carmaker’s outlook for increasing profit prompted Toyota in March to approve the biggest bonus for workers since 2008.
Alan Mulally, Ford’s chief and the best paid among the top five, took home $21 million in 2012, according to data compiled by Bloomberg. Martin Winterkorn, VW’s chief executive, was paid 14.5 million euros ($19 million) and Dieter Zetsche got 8.15 million euros at VW’s German rival Daimler. Dan Akerson of GM, the Detroit carmaker part owned by the U.S. and Canadian governments, received $11 million.
That doesn’t mean Toyoda is just scraping by. He controls 0.13 percent in shares of the family carmaker, valued at $256 million. That stake generated a dividend worth about $4.2 million in the year ended in March.
Salaries and bonuses for leaders at Japanese corporations lag behind global levels, said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo, which manages about $3 billion in assets.
Nissan Motor Co.’s Carlos Ghosn, among Japan’s highest-paid CEOs, earned 988 million yen in the year ended March 2013, little changed from the previous year. That wouldn’t even put him among the top 100 U.S. company chiefs, according to data compiled by Bloomberg.
“Japanese executives aren’t paid enough,” Merner said. Companies “don’t want to create jealous feelings.”
In 2010, Toyoda -- who races sportscars and knows how to work the automatic loom his great-grandfather invented -- rejected his bonus pay after a recall of more than 8 million cars worldwide led to a U.S. Congressional hearing. The cut brought his annual compensation to less than 100 million yen, the lowest among Japan’s three largest automakers for the year.
“I was feeling enormous pressure and was full of anxiety as I went in to bring up the rear of this losing battle,” he said at the company’s annual meeting that year.
By March 2011, Toyoda had steered the company past the recall crisis and laid out a plan to restore profitability and Toyota’s reputation for quality. Then a magnitude-9 earthquake and a tsunami hit Japan, disrupting output for months. Before the company could fully recover from the quake, flooding in Thailand -- Toyota’s southeast Asian manufacturing hub -- worsened parts shortages, making it more difficult to restore production.
Toyoda revamped the company’s business continuity plan, gathering information on suppliers down to the third-tier to ensure alternate sources for parts. A quicker-than-forecast return to full output, six months after the earthquake, marked the beginning of Toyota’s turnaround and a rally in its shares.
Much of Toyota’s gain has come as investors pour money into shares of Japanese exporters, expecting them to benefit from the yen’s 14 percent drop versus the dollar in the past six months as Prime Minister Shinzo Abe has sought to weaken the currency.
Each one-yen decline in the Japanese currency’s value against the dollar adds about 35 billion yen to Toyota’s operating profit, or about 140 billion yen in the year ended March 31, based on the average exchange rate in the period versus a year earlier.
The currency shift makes it easier for Japanese carmakers to compete on price in the U.S. and Europe, where Toyota, Nissan and Honda Motor Co. have been losing market share to South Korea’s Hyundai Motor Co. and Kia Motors Corp. (000270)
Still, while Toyota sold the most cars worldwide last year, VW’s annual profit was more than double the Japanese automaker’s. In China, a territorial dispute led to boycotts of Japanese cars in September. Toyota sales in the country fell last year even as the protests subsided and GM and Volkswagen deliveries increased.
Toyoda also has work to do in the U.S., where the Camry, the best-selling midsize car in the country every year since 2002, was outsold for two straight months in its segment. In the three months ended in March, GM, Ford (F) and Chrysler Group LLC also gained U.S. market share -- the first quarter since 1993 in which the three biggest American automakers managed to claim a bigger piece of the market. And GM has unseated Toyota in J.D. Power & Associates’ initial quality survey.
By certain measures, investors have become less bullish on Toyota this year. The company’s shares are now valued at 11 times estimated earnings, compared with 14 times at the end of December, according to weekly data compiled by Bloomberg. Toyota now trades at a 23 percent premium to GM on a dollar basis, compared with a 66 percent premium at the end of last year, the price-earnings ratio data show.
For help managing the issues the company faces, Toyoda has turned to longtime colleague and GM veteran Mark Hogan, 61, naming him to the company’s board -- Toyota’s first non-Japanese director since 2007. Hogan’s ties to Toyoda stretch back decades, when both worked at a now-defunct Toyota-GM joint venture plant in California.
Hogan “knows our local management,” Toyoda told reporters on March 6. “And since he has worked for companies outside of Toyota, I am sure he’ll help us make better management decisions.”
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