As Clorox turns 100, looking at the Oakland company’s executive pay
on May 22, 2013
Best known for its red, white and blue bottle, Clorox has been the standard “clean scent” for many Americans for over a century. Since its very beginning, when five entrepreneurs each invested $100 to set up the first commercial-scale bleach factory in the United States, the company has kept a low profile when it comes to executive pay, although its compensation package for Chief Executive Officer Donald Knauss is similar to those of other Fortune 500 companies.
Executive pay and compensation have been the subject of much media examination, creating headlines that have put some of the country’s most powerful companies under intense scrutiny from consumers, stockholders and corporate good governance activists. Executive pay encompasses the total financial compensation received by company executives. It can include a mixture of cash salary, bonuses and shares of stock in the company.
In recent years, executive pay has risen dramatically compared to the average American worker’s wage, which was about $34,645 in 2012. According to Clorox’s latest proxy statement, Knauss received $11,458,389 in total compensation in 2012 – that’s 331 times the average worker’s pay. Some investment banking firms award their CEOs much higher salaries, as much as 500 times the average worker’s pay.
(After multiple requests for comment sent by phone and email, a Clorox representative said that company members were unavailable to comment on Knauss’ compensation.)
Some of the perks for executives have gone up considerably in the last 30 years, according to Benjamin Hermalin, Thomas and Allison Schneider Distinguished Professor of Finance at The Haas School of Business at UC Berkeley. He has conducted extensive research on executive pay.
One factor behind this comes from some of the guidelines put in place in the last century, which have continued to increase the demand for CEOs to perform or risk losing their jobs. In the past, executives rose through the ranks and stayed with a company for many years. This is no longer the case and the search for executive talent is now global, Hermalin said.
Companies from around the world recruit executives from around the world. The drive to hire a particular executive may result in a bidding war that drives up salaries and compensation packages, Hermalin said.
“I personally think a lot of this is misguided,” Hermalin said. “People over-emphasize the talent of the people and underrate the luck of the draw. Sometimes it is just being in the right place at the right time.” He also said that sometimes companies don’t think about the value of the stock options given to executives as part of their compensation packages.
But, he cautioned, “Everyone should keep in mind that executive pay is a huge and complicated topic. You can’t look at it as if there’s some one-size-fits-all approach to be taken.”
Clorox in Oakland
Founded in 1913 by five California men, the company was created to convert brine from the nearby salt ponds into bleach through electrolysis. The men bought the plot of land that would become the first Clorox manufacturing site for $3,000. The company had an initial stock issue of 750 shares for $100 per share in 1914. A century later, Clorox had about 133 million diluted shares in circulation, according to its most recent quarterly report filed with the Securities and Exchange Commission. In 2012, it had about $5.5 billion in sales revenues, up about 4.5% from the prior year. Sales have risen steadily in recent years with the exception of 2011. About a quarter of its sales come from international products.
Knauss, who has worked at a variety of large corporations before moving to Oakland, joined Clorox as chairman and CEO in 2006. Though the company saw a decline in the value of its shares during part of his chairmanship, hitting a low of less than $50 a share at the start of 2009, the company’s share price has increased sharply since then, recently trading at around $86 a share.
In 2010, at a time when Oakland’s unemployment rate crawled above 17 percent, the company shifted about 500 employees to Pleasanton. There are still approximately 500 Clorox workers who provide foot traffic to downtown Oakland and business to its restaurants and cafes.
In 2011, Knauss was honored with the Responsible CEO of the Year award, a prize given by CR Magazine to CEOs who align “business and stakeholder interests.” The magazine reports on issues of corporate responsibility. Additional award recipients include Paul Rooke of Lexmark International, Inc., Fred Krupp of the Environmental Defense Fund and Arne Duncan, U.S. Secretary of Education.
Last year, Knauss made $1.1 million in salary. Stock options, deferred compensation earnings and other additional compensation, boosted the total for the year to nearly $11.5 million.
Compared to his peers, Knauss’ salary may not seem extreme. In 2012, fellow household cleaning products giant Procter and Gamble, Co. paid its CEO, Robert A. McDonald, $1.6 million. With stock awards, bonuses and other compensation taken into account, McDonald made about $15 million.
An April 30, 2013 Bloomberg article shows the pay ratios calculated using worker pay and benefits recorded by the U.S. government as industry averages and comparing that information with the CEO pay from Standard and Poor’s 500 list of the top 250 companies.
Clorox shareholders don’t seem to be opposed. Stockholders took a “say-on-pay” vote in November 2011, and approved salaries for Knauss and other executive officers by a 78 percent vote. Disapproval came from 9.5 percent, which was mostly clustered in the stocks of activist investor Carl C. Icahn, who had attempted to take over the company before the meeting. (Icahn ended his bid after it failed to win stockholder support.)
Peter Melton, a spokesman from California’s Department of Industrial Relations, says there have been a handful of people who’ve filed wage claims against Clorox. One of them was filed by a woman who claimed $25,261.56 for unpaid overtime wages over the course of March 1999 to February 2002. Ultimately she received $12,631 – a substantial amount, according to Melton.
More recently, in 2008, another Clorox employee filed a $1,262.32 claim for regular overtime wages during the course of one month in 2007. He didn’t win his case.
According to Clorox’s 2011 Annual Report, about 2 percent of the company’s workforce are union members.
|Ranking||Company||Pay Ratio||CEO Pay & Benefits||Average Worker Pay & Benefits|
|72||Proctor & Gamble||336||$15.2M FY 2012||$45269|
|143||The Clorox Company||253||$11.5M FY 2012||$45269
Correction: A prior version of this story incorrectly reported a steady decline in sales revenues led Clorox to report $50 million in revenues in fiscal 2009. In fact, Clorox Co. experienced rising sales revenues in recent years (except for 2011), which led to the posting of a 3% increase to $5.5 billion in fiscal 2009. (The decline noted in that recession year did affect stock price, which briefly dipped to around $50 a share in 2009.) In addition, according to its most recent quarterly report for the third fiscal quarter ended March 31, 2013, filed with the Securities and Exchange Commission, Clorox had about 133 million shares of stock outstanding on a diluted basis, not 1.2 million as previously reported. This story has been amended as of May 28. Oakland North regrets the errors.
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