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Originally published March 24, 2007 at 12:00 AM | Page modified March 24, 2007 at 2:00 AM

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Boeing business climbs, so does pay for top execs

A new Boeing policy tying annual incentive payments to performance targets stung one executive in 2006: Jim Albaugh, head of the weaker...

Seattle Times aerospace reporter

A new Boeing policy tying annual incentive payments to performance targets stung one executive in 2006: Jim Albaugh, head of the weaker defense side of the business, saw his annual bonus cut in half compared with the previous year.

But big payouts from previous long-term incentive plans based solely on the soaring stock price left Albaugh with no hole in his pocket. His total take-home compensation last year still topped $15 million.

Compensation for the jet maker's top executives climbed with the company's stock and its booming commercial airplane business.

Boeing Chief Executive Jim McNerney received a salary, bonus and stock grants valued at $14.5 million. He also was awarded stock options that will vest later, worth $4.3 million based on Friday's share price, and a performance award that will pay out up to $11.4 million in 2009, depending on company profits over the next two years.

Alan Mulally, the former head of the commercial airplanes unit based here, who left his job Sept. 5 and officially retired from the company at the end of that month, took away almost $23 million last year, including more than $21 million from incentive-plan stock payouts.

In addition, Boeing gave Mulally stock options worth about $1.1 million and a performance award that will pay out up to $3.2 million in 2009.

As a retired executive, Mulally receives a monthly pension from Boeing. He was paid $24,000 for the final quarter of 2006, indicating a pension of $8,000 per month.

Top pay at Boeing


Boeing disclosed what it paid its top executives in 2006 in its annual proxy statement filed with the Securities and Exchange Commission on Friday. Pay includes base salary, bonus and other perquisites. Total compensation includes pay and stock grants for last year. Stock options, performance awards and pension value increases are future potential payouts.

Jim McNerney, chief executive

Pay = $7.9 million

Stock grants = $6.6 million*

Total comp = $14.5 million

Stock options worth $4.3 million**

Performance award up to $11.4 million***

Pension value up $1.1 million

James Bell, chief financial officer

Pay = $1.7 million

Stock grants = $5.9 million*

Total comp = 7.6 million

Stock options worth $1.1 million**

Performance award up to $2.5 million ***

Pension value up $1.1 million

Jim Albaugh, chief executive, Integrated Defense Systems

Pay = $1.8 million

Stock grants = $13.6 million*

Total comp = $15.4 million

Stock options worth $1.1 million**

Performance award up to $3.2 million***

Pension value up $663,000

Laurette Koellner, president, Boeing International

Pay = $1.6 million

Stock grants = $9.4 million*

Total comp = $11 million

Stock options worth $330,000**

Performance award up to $1.3 million***

Pension value up $343,000

Alan Mulally, former chief executive, Boeing Commercial Airplanes

Pay = $1.6 million

Stock grants = $21.1 million*

Total comp = $22.7 million.

Stock options worth $1.1 million**

Performance award up to $3.2 million***

Pension value up $624,000

Source: SEC proxy filing and Boeing

* Value at the time of the grant. Because of the share-price climb since then, that's as much as 25 percent lower than the current value.

** Based on Friday's share price of $90.98 vs. an exercise price of $74.45.

*** Payable in 2009

Mulally is still owed another $23 million of deferred Boeing compensation, tied up in retirement accounts such as 401(k) plans.

After taking over as chief executive in mid-2005, McNerney scrapped the previous long-term incentive plans based on the stock price, which paid nothing in years like 2002 and 2003 when Boeing made money but the stock was depressed, in favor of a new plan where a large portion of the payout is determined by internal financial targets linked to profits.

The formula for calculating the bonus depends on the overall company performance and each executive's score against preset performance targets.

Albaugh's bonus dropped from $1.6 million in 2005 to $730,000 last year. All the other top executives saw their base salary and bonus stay flat from the previous year.

"They all get the same company score. If there's a decline or an increase compared to other executives, it comes down to their individual score," said a company official who asked not to be identified. "Albaugh's bonus was the only one where the individual score drove a noticeable change year over year."

Last year, poor performance on the 737 Airborne Early Warning and Control program in Albaugh's Integrated Defense Systems division resulted in a $274 million charge and sliced profit margins by 2.4 percent.

The compensation committee of the board of directors has some discretion in setting performance scores both for the company and for individuals.

The committee excluded from its performance calculation two big charges for the year: $571 million paid to settle with the federal government all legal cases related to two defense-procurement scandals; and $320 million to terminate the failed Connexion in-flight Internet venture.

McNerney was the only executive whose annual bonus came in at the maximum allowed under the formula.

One element that's considered, said Boeing spokesman Todd Blecher, is a market assessment "comparing him to what the CEOs of peer companies earn."

Doug Kilgore, executive director of the Worker Owner Council of Washington, representing the shareholder interests of building-trade unions pension funds, said that executive pay at large corporations is "excessive across the board" and that the idea of pay per performance is dubious if measured, as in Boeing's plan, against internal targets.

True pay-for-performance plans "provide superior pay only in the case of superior performance measured against peer companies not just internal measures," Kilgore said. "The trouble with internal measures is that it's easier, frankly, to game the system."

In any case, Albaugh and all the other executives except McNerney benefited hugely from the stock-based bonus plans in place from previous years. Payouts from those plans were triggered as the Boeing share price blasted through one threshold after another.

And McNerney benefited from the "golden hello" Boeing gave him when he joined the company from 3M in 2005.

He got a $6.6 million stock grant in 2006, the first installment of the huge stock grant awarded him as an inducement to come to Boeing. He still has $27 million worth of that grant coming to him in later years.

In addition to his base salary and bonus, McNerney got more than $1 million in relocation expenses for moving his family in 2006 from Minnesota to Illinois.

And he and other executives received the standard Boeing perk of travel on company jets, both for business and personal trips.

The filing did not include Scott Carson, who became chief executive of the commercial airplanes unit in September.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com

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