All of the 10-Ks and proxy statements have been filed for MLPs, which means we can now look at the 2011 compensation for each MLP executive. I’ve done that, and summarized the results in the tables below.
Reported Total Compensation
The first two tables focus on the reported total compensation number, which includes salary, bonuses and stock awards. I show the MLP CEOs with the largest compensation packages, and then show the CEOs with the smallest compensation packages, and the corresponding 2011 MLP returns. The average MLP CEO made $2.6 million in 2011. The top 10 made an average of $7.7 million, while the bottom 10 made and average of $281,224.
You can see below there seems to have been a correlation between compensation and returns in 2011, as well as one between compensation and market cap. The highest paid CEOs usually work for the larger MLPs. Also, the positive relationship between compensation and performance makes sense given that the bonus and stock portion of the compensation tends to be higher in years when the stock price has gone up.
Reported Base Salary
Total compensation can be lumpy, so I thought it would be interesting to see what the average MLP CEO’s base salary is. Turns out it was $420,704 in 2011. This data is pretty interesting. Looking at the averages, clearly the larger the MLP you run, the more you are likely to make, which to me is very logical. But there is always an exception, and that exception is the CEO that earned the highest base salary in 2011 ($800,000): Eric Slifka of Global Partners (GLP). Another outlier is Stephen Wambold of Ferrellgas (FGP) at more than $700,000 for running a smallest of the four main propane MLPs.
What I don’t see is a strong relationship between base salary and stock price returns. A few outliers on the lower paid CEO list skew the results somewhat, but I would argue that the performance disparity was driven by market cap and trading volume in 2011. The large cap MLPs outperformed the index and small caps in 2011, because of all the money that flowed into MLP ETFs and closed-end funds that favors large caps. So, large caps did better in 2011 and large caps pay their CEOs more.
Which MLP CEO produced the most return per dollar of compensation?
The answer, from the chart above, is Richard Kinder, and it will continue to be Kinder (KMP) each and every year that KMP produces a positive return, because he only gets paid $1. Kinder is the gold standard for executive compensation, no matter what you think about how much cash flow goes to the incentive distributions rights. Here is an excerpt from KMP’s 10-K section on executive compensation:
“At his request, Richard D. Kinder receives $1 of base salary per year from Kinder Morgan Kansas, Inc. Additionally, Mr. Kinder has requested that he receive no annual bonus or other compensation from us or any of our affiliates…Mr. Kinder does not have any deferred compensation, supplemental retirement or any other special benefit, compensation or perquisite arrangement with us, and each year, Mr. Kinder reimburses us for his portion of health care premiums and parking expenses.”
Since he started getting paid $1 in 2000, Kinder has made a total of $12 in compensation. How does Kinder survive on $10 a decade? Well, it’s all about Kinder’s general partner stake. Kinder owns 21.0 million shares of Kinder Morgan Inc (KMI) directly, not including shares he may own indirectly in partnerships associated with the buyout. Those 21.0 million shares pay out $26.9 million in annual dividends at the current distribution rate. This might seem like a lot, but at the time of his death in March 2010, Enterprise Products Partners LP (EPD) founder and CEO Dan Duncan was making cash distributions at a rate of more than $450 million annually from EPD.
Below is the list of the CEOs that get paid the most from their direct holdings in the MLP they manage. When factoring in those distributions, actual payment from the company in one way or another for the low salary CEOs starts to make sense. Kinder makes more from his KMI shares than any other CEO’s total compensation and distributions combined. Kelcy Warren, similar to Kinder, holds a large stake in his public GP. Note that Forrest Wylie is no longer CEO of Buckeye Partners LP (BPL), but he was in 2011, so he’s on the list.
Where have all the Duncan’s Gone?
Going through these numbers, it was amazing to see just how many MLPs have their GPs owned by private equity firms and public corporations. There are not very many “founder”-run MLPs out there anymore. I define “founder” CEOs as CEOs who have been CEO since IPO or since a major transformative event, but is not private equity controlled or corporation controlled (I‘m also only counting CEOs of companies that have been public for more than a year).
I found just 15 founder CEOs out of the 74 or so MLPs I reviewed for this column. In just the last few years, we’ve seen 2 such MLP CEOs die (Duncan and CPNO’s John Eckel); a few (like Mike Linn) have moved to figurehead roles or left altogether (like PVR’s Jim Dearlove). The new MLPs are more often than not either backed by another public company (25 such MLPs) or controlled by a private equity firm that has installed its own CEO (8 such MLPs). The sector may have outgrown the founder CEO, we may never again see the likes of Kinder and ARLP’s Joe Craft.
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