War Means a Windfall for CEOs
U.S. President Bush’s military build-up and the conflict in Iraq have meant soaring profits for defence contractors and big paycheques for CEOs. But should we be concerned?
September 20, 2007
While policymakers in Washington wrangle over how much progress the U.S. has made in Iraq, one thing is clear: The war on terror is making some people rich.
Bush’s military build-up has caused defence-contractor revenue to double, triple and even more during the past five years, and their executives have reaped huge bonuses andwindfalls as the companies’ share prices have jumped.
Take a look:
-CEOs at top defence contractors have reaped annual pay gains of 200% to 688% in the years since the Sept. 11, 2001, terror attacks.
-The chief executives at the seven defence contractors whose bosses made the most pocketed nearly a half-billion dollars from 2002 through last year.
-The CEOs made an average of US$12.4 million a year, easily more than the average corporate chief. Since the start of the war, CEOs at defence contractors such General Dynamics, Halliburton and Oshkosh Truck have made, on average, more in four days than what a top general makes in a whole year, or US$187,390.
Defence contractor CEOs are enjoying these big rewards partly because much of the war effort is being outsourced by an administration that believes private companies do things better than the public sector, say researchers at the U.S. Institute for Policy Studies and United for a.
“In the most privatized war in history, lucrative opportunities abound for chief executives of defence contractors,” says Sarah Anderson of the Institute for Policy Studies.
US$19.5 million a year
General Dynamics CEO Nicholas Chabraja tops the list of defence-contractor chiefs who have made the most money during the 2002-2006 defence build-up. Between 2002 and 2006, he pocketed US$97.9 million, or an average of US$19.6 million a year.
Sales at General Dynamics increased 76% from 2002 to 2006, with significant help from U.S. Department of Defense spending. Overall sales increased to US$24.1 billion from US$13.6 billion, and at least a third of that increase came from higher Department of Defense spending.
Those contract awards helped General Dynamics stock more than double to US$80 a share from US$39 at the start of 2002. In the same time frame, the S&P 500 Index has advanced 28%. The big stock advance allowed Chabraja to collect US$21.5 million by cashing out stock options last year. General Dynamics, which supplies technology that goes into combat systems used by several branches of the military, was the fourth-largest U.S. Defense Department contractor last year.
David Lesar at Halliburton made US$79.8 million, or nearly US$16 million a year, from 2002-2006. During this time, Defense Department revenue at his company grew from just 4% in 2001 to 40% in 2004. That year, the company got nearly US$8 billion in defence contracts out of total revenue of US$19.9 billion.
Virtually all of that money was for logistical support, engineering and construction services provided by Halliburton’s Kellogg, Brown and Root division, which was spun out earlier this year to trade as KBR Inc. Those contracts helped drive Halliburton stock from US$5 at the start of 2002 to more than US$40 last year. The gains allowed Lesar to reap US$13.6 million just by cashing in options last year, and US$14.7 million the year before.
Lockheed Martin Chief Executives Vance Coffman and Robert Stevens together earned US$64.8 million from 2002 to 2006. Stevens has also realized more than US$19 million so far this year by cashing in options. He replaced Coffman as CEO in August 2004.
Lockheed Martin’s U.S. Defense Department-related revenue increased from US$17 billion in 2002 to US$26.6 billion in 2006, a 57% increase. The stock has more than doubled to US$100 from US$47 at the start of 2002. Lockheed Martin was the top U.S. Defense Department contractor last year.
For the rest of the highest-paid defence contractors, see the chart below summing up the pay of those who earned the most. To calculate pay levels, I examined company documents and the U.S. Institute for Policy Studies CEO pay database. Pay includes salary, bonus, value realized on exercising and vesting stock options, nonequity incentive plan compensation, long-term incentive stock and “other” pay. Companies had to get more than 40% of their revenue from the Defense Department in one of the past three years to make the list.
See the list at Sympatico/MSN Canada