Is Mulally Worth $26 Million a Year?
By Charles Krome
It was likely no coincidence, but the day after the March sales figures came out, showing Ford had outsold General Motors for the month, the Detroit Free Press reported on the fact that Ford President and CEO Alan Mulally took home about $26.5 million in compensation in 2010. And this came after he reaped a $33.4 million stock windfall at the beginning of last month that was tied to his 2008 compensation package. The Free Press even went so far as to predict that, all told, Mulally’s financial rewards for his work at Ford could set a new industry record. (For those who are curious, the Freep claims Alex Trotman, who ran Ford from 1993-1998, owns the current high-water mark at $73 million.)
Needless to say, even given Ford’s incredible turnaround, that kind of money raised a few eyebrows. UAW President Bob King called Mulally’s compensation “morally wrong,” and that was before the latter’s 2010 pay information was released.
But let’s dig a little deeper here. First off, the money Mulally makes on his stock awards, including a little more than half of his 2010 compensation, deserves some special treatment because it’s so closely tied to Ford’s overall performance. The value of the stock is a direct reflection of the automaker’s performance in the marketplace, and that’s a direct reflection of what Mulally’s been able to accomplish. And conversely, remember that if Mulally hadn’t been able to save Ford, that stock would have likely ended up worthless.
Of course, this assumes that much of Ford’s improvement really is attributable to Mulally, a point that some dispute. The thinking here goes that Mulally is just one person who is just one part of a much larger team that’s “really” responsible for the Ford renaissance. Thus, he shouldn’t get such an outsized reward—especially when so many other employees have lost their jobs or significant chunks of their salaries/benefits.
I can see the point to that argument, but consider: It’s not going too far out on a limb to claim Mulally’s efforts were responsible for at least some small part of Ford’s recent success, right? And while I know it may be hard to put an exact figure on his contributions, let’s try anyway, using a very low-ball figure. Would anyone argue with the proposition that Mulally’s leadership was 25 percent of the reason that Ford did so well in 2010? How about 10 percent? Heck, just for the sake of argument (and easier calculations), let’s say Mulally only drove .5 percent of Ford’s accomplishments last year.
In that case, it could be argued that rewarding him in direct relation to the amount he helped the company would result in a $33 million compensation package. That’s .5 percent of $6.6 billion, which was Ford’s net income last year.
Maybe Mulally actually was underpaid in 2010? Well, probably not, but it does give you something to think about.