Tales From the Crypt: More Horrifying CEO Pay Packages

In a study released last week, executive compensation research firm Steven Hall & Partners looked at the CEO pay packages of the first 100 filers for companies with revenue in excess of $1 billion. The firm found that median net income growth of 17% in 2011 exceeded CEO compensation growth. Their findings suggest that CEO pay remains in line with performance and that better stock performance leads to a bigger pay package.

That's fine and dandy -- if everyone followed the rules, that is. Over the past week we've witnessed more mind-boggling, brain-numbing CEO pay increases from companies that, in my mind, have no business giving their leaders a raise. To steal a line from late-night host Stephen Colbert, I wag my finger in disdain at the following three CEOs:

Dean Foods (NYS: DF) CEO Gregg Engles
Like so many other food producers, Dean Foods has struggled with higher input prices. Its Fresh Dairy Direct segment has seen milk pricing under pressure for the better part of two years and only recently returned to growth.

But you wouldn't know that by CEO Gregg Engles' compensation package. Engles has taken home a staggering $117.9 million over the past five years and has averaged $20.4 million in compensation over the past six years despite his stock's average annual decline of 11% over that time span. According to Forbes CEO compensation rankings, which take into account the CEO's effectiveness based on compensation versus stock performance over a six-year period, Engles ranks dead last out of all qualifying CEOs -- 196 out of 196!

Naturally, I wasn't surprised when a regulatory filing last week noted that Engles' total compensation grew dramatically in 2011 to $8.64 million from the $6.28 million he received the year prior.

Was this pay raise deserved? Well, Dean Foods' fiscal 2011 highlights included a non-cash, goodwill impairment charge on its Fresh Dairy Direct segment in the amount of $1.6 billion, a $24 million increase in capital expenditures in a year in which it was said to be cutting costs, and a $101 million decline in free cash flow to $123 million from the year-ago period's $224 million. To boot, Dean's leverage ratio now sits at 4.64, while the maximum leverage coverage ratio of its debt covenants will drop to 5.5 next quarter. Over-levered much?

To me, the answer to whether Engles deserved more money this year is pretty clear: Heck no!

Synovus Financial (NYS: SNV) CEO Kessel Stelling
Nothing draws the ire of shareholders like a compensation increase from a bank that still owes money to the U.S. Treasury.

Synovus, which only recently returned to profitability in the past couple of quarters after losing money since 2008, has been inching its way back to solid footing, but it still has a long way to go. Its portfolio has seen a 57% dropoff in net charge-offs, and the bank has been working diligently to reduce costs.

How has Synovus been cutting costs, you ask? One way is by letting more than 25% of its workforce go since the recession. Despite cutting 2,000 jobs since 2008 and losing money in six of the past eight quarters, Stelling got a nice compensation boost of 66% to $1.47 million. What's even more of a slap in the face is that the jump came despite Stelling's bank's failure to start paying back the $968 million it borrowed in TARP funds.

This move comes in stark contrast to some of Stelling's industry peers, who have been prudently trimming their own pay in line with their companies' performance. Aflac (NYS: AFL) CEO Dan Amos, who is no stranger to receiving a hefty paycheck, recommended to the Aflac board of directors that his bonus be cut by 17%, given the trouble the insurer has had in Europe. That's a move worthy of a tip of my hat. As for Stelling, I don't think he deserves a pay hike until Synovus starts repaying its massive TARP loan. That's just common sense.

Sears Holdings (NAS: SHLD) CEO Louis D'Ambrosio
This one wasn't a pay raise so much as a "You've got to be kidding me" moment.

Sears, which is in the process of shuttering 160 to 180 of its retail locations, and earlier this month announced plans to close three large outlets in Canada and return them to their developer in exchange for about $170 million, paid first-year CEO Louis D'Ambrosio $9.9 million!

Allow me to run that by you one more time. Sears, which is struggling to generate cash, is buried under $3.5 billion in debt, and has seen sales fall for five straight years, thought it would be prudent to pay its CEO $9.9 million in 2011. For those of you who share my disbelief: No, your eyes don't deceive you.

Sears has been losing market share in practically every segment. Its retail operations have been stagnant, and its equipment sales have suffered as do-it-yourself juggernaut Home Depot (NYS: HD) has lured customers away from the now-stale Sears franchise.

Despite the stock's enormous rally so far this year, there are far more questions than answers at this point. The company is beginning to close and, in some cases, sell off underperforming stores in order to generate cash, but this seems like a temporary solution to the long-term problem of how to generate growth. With Wall Street forecasting sales declines in fiscal 2013 and 2014, it's nearly impossible to justify any multimillion-dollar pay package for the leader of this aching retailer.

Foolish roundup
Another week, another group of CEOs that appear completely out of touch with reality. Now that the STOCK Act appears ready to become a law, maybe we can turn our attention to the next most pressing matter: absurd CEO compensation packages.

Disagree with me? Tell me about it in the comments section below.

If you're looking to avoid management and shareholder disconnects like these, then I encourage you to check out our latest special report, in which our chief investment officer gives you the skinny on his "Top Stock for 2012." Find out for free which stock has him buzzing with excitement.

At the time thisarticle was published Fool contributor Sean Williams owns puts on Sears Holdings but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Dean Foods. Motley Fool newsletter services have recommended buying shares of Home Depot and AFLAC. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that divvies out transparency daily.

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