These kinds of ties — between chief executives and the boards that oversee them — permeate corporate America. On a typical board, the chief executive considers about about 33 percent of the board of directors as “friends” rather than as mere “acquaintances,”according to a survey of chief executives at about 350 S&P 1500 corporations conducted over 15 years by University of Michigan business professor James Westphal.
More tellingly, the chief executive is likely to find even more friends on the compensation committees of corporate boards — almost 50 percent.
In an advisory vote by Amgen shareholders in May, about 56 percent of votes cast approved the company’s executive compensation. Many shareholders, however, are frustrated.
“The members of the Amgen board are basically just rubber-stampers,” said Steve Silverman, who owns one of the largest chunks of Amgen stock held by an individual investor. “Kevin put most of them on the board himself. If he’s getting paid too much — and he certainly is — they’re not going to say so.”
Sharer declined interview requests, and members of the board’s compensation committee did not return phone calls seeking comment for this story. Representatives of the compensation consultant Frederic W. Cook & Co., which provided the analysis that led to Sharer’s raise, also declined to comment. A reporter who visited Amgen’s Thousand Oaks headquarters was prevented from meeting with the company’s spokeswoman.
Amgen released this statement via e-mail:
“Our executive compensation programs are oriented toward rewarding long-term performance in support of stockholders’ interests and are designed to attract, motivate and retain the highest level of executive talent by paying them competitively, consistent with their roles and responsibilities, our success and their contributions to this success.”
Skewing the comparisons
To examine the process of peer benchmarking for executives, The Post chose to examine the case of Amgen, but the practice is widespread and yields controversial results at many companies:
• At Adobe Systems, the software company, chief executive Shantanu Narayen earned $12.2 million in 2010 despite the fact that shareholder returns have been negative over one- and five-year time frames. A key driver? The compensation committee decided that Narayen should be paid at the 90th percentile of peers.
• At Discovery Communications, the pay for chief executive David M. Zaslav has jumped from $7.9 million in 2008 to $11.7 million in 2009 to $42.6 million in 2010, making him the highest-paid executive in the Washington region.
In part, this is because the company aims executive pay at between the median and 75th percentile of peers.
Moreover, Discovery chose much larger companies for comparisons. Discovery’s revenue was $3.8 billion last year, but it chose as “peers” such companies as Time Warner Cable, which had five times as much revenue; CBS, which is more than three times as large; and DirecTV, which is six times as large, according to data from Equilar, the executive compensation research firm.
• At Countrywide Financial, then-chief executive Angelo Mozilo earned more than $180 million as he led the company to the brink of ruin during the five years before the housing bust. At times, his pay had been set at the 90th percentile of peers.
Mozilo blamed “the left-wing anti-business press and the envious leaders of unions” for putting pressure on corporate boards to restrain executive pay. Cutting executive rewards, he said, would discourage talented leaders.
“I strongly believe that a decade from now there will be a recognition that entrepreneurship has been driven out of the public sector,” he wrote in an October 2006 e-mail that was turned up by a congressional investigation.
Known for his ambition and a blustery manner, Sharer, a 1970 graduate of the Naval Academy, arrived at Amgen in 1992 as president, chief operating officer and a member of the board of directors.
Amgen had been a high-flying firm. Founded in 1980, it had rapidly become one of the largest biotech companies in the nation, thanks to its success with two drugs, Epogen, for people suffering kidney disease, and Neupogen, a drug used in cancer treatment.
Sharer, whose executive career included stints at MCI, General Electric and the McKinsey consulting firm, believed in the importance of his position.
“Leadership has been the most important force in the history of the world, and it is clearly the most important quality in running companies,” Sharer told Harvard Business School students in 2001.