article

06.07.10

America's Best-Paid Deputies

Why is BP a management basket case, while Apple shines? A powerful second in command. Peter Lauria on the 20 highest paid second fiddles—and why some make more than their boss.

.

As global outcry builds to a crescendo about BP's handling of the mile-deep gusher in the Gulf of Mexico, perhaps the only thing keeping BP Chairman and CEO Tony Hayward in place is the fact there is no obvious candidate at the company to step in and fill the void.

Click Here to View Our Gallery of the 20 Highest-Paid
No. 2s

Compare that management structure with the other company making headlines Monday: Apple, which unveiled its new iPhone to great fanfare. When Apple CEO Steve Jobs took a six-month medical leave of absence last year, investors worried that the company’s vision and execution, so closely tied to that of its leader, would suffer. But Tim Cook, Jobs’ second-in-command, stepped up and flawlessly led Apple through the transition, introducing new versions of the MacBook and iPhone during that time and earning himself a $5 million bonus for “outstanding performance.”

As these two examples illustrate, in corporate America, behind every great CEO there is a trusted lieutenant capable of steering the company to success while every poor one typically stands alone as their company sinks into the abyss. Smart leaders know how rare and valuable it is to have a strong No. 2, and they are compensated accordingly. The second-in-command may not technically be the boss, but they frequently bring home a bigger paycheck.

“Oftentimes, the COO or president is being groomed for the CEO job,” says Paul Hodgson, senior research associate for governance and compensation firm The Corporate Library. “Because of that, they become attractive candidates for other companies looking for a CEO that haven’t groomed one themselves. Their pay is one way to keep them from leaving.”

Against that backdrop, with new pay data recently out, The Daily Beast asked Equilar, an executive compensation research firm, to compile a list of the 20 highest-paid No. 2s, among the 250 largest publicly traded companies. (We also included chairmen who aren't CEOs.) Executives are ranked based on total compensation, which Equilar calculated using base salary, cash bonuses, stock and option awards, and other compensation such as benefits. Only companies that filed a proxy statement for fiscal year 2009 by May 31 were included in the study.

The list, book-ended at the top by Oracle President Safra Catz, who pulled in $42.4 million last year, is dominated by executives from the typically high-paying industries of technology, media, and finance. These three industries are also very liberal with stock-option awards, which has helped pad the bank accounts of executives as the share prices of companies in those sectors recover from 2008’s depressed levels. (One-third or more of the compensation for executives included on the list stemmed from stock or option awards.)

Despite its near-collapse just two years ago, for instance, six No. 2s from the banking industry landed on the list, roughly one-third of the total, led by Bank of America President Thomas Montag, who ranked fourth with $30 million in total compensation last year.

Montag is one of seven No. 2s to earn more than their boss did last year—BofA CEO Ken Lewis forfeited his salary and bonus in 2009 because of the bank’s troubles. Others include Comcast COO Stephen Burke, whose $31 million compensation package was more than CEO Brian Roberts’, and Google President Nikesh Arora, whose $24.5 million in total compensation was greater than CEO Eric Schmidt’s, among others.

Conversely, when the second-in-command wasn’t paid more than the CEO, as is the case with Oracle’s Catz and Viacom’s Tom Dooley, the respective leaders of those companies, Larry Ellison at Oracle and Philippe Dauman at Viacom, were so richly paid that they had to cut fat checks to their lieutenants if only to maintain parity.

And keep them around.

EDITOR'S NOTE: Due to a data error from Equilar, Keith Block was originally included in this article and was identified as co-president of Oracle. He is Executive Vice President. This article has since been updated.

Peter Lauria is senior correspondent covering business, media, and entertainment for The Daily Beast. He previously covered music, movies, television, cable, radio, and corporate media as a business reporter for The New York Post. His work has also appeared in Avenue, Blender, Black Men, and Media Magazine, and he's appeared on CNBC, Bloomberg, BBC Radio, and Reuters TV.