Eight CEOs’ total windfall: $250 million

As stock prices tumbled in 2008-09, companies made huge options grants to their top execs, who then scored millions when the market recovered. See who’s up $75 million.

It’s no surprise anymore that CEOs get lavish bonuses — even when shareholders lose money or when CEO pay is supposedly declining at least a little.

But when I wrote a couple of months ago about the latest way chief executives are collecting bonanzas — in “Five huge CEO paydays” — it wasn’t clear just how well some of them had made out during the Great Recession we’ve just been through.

Turns out, based on the latest numbers compiled by the pay experts at The Corporate Library, a corporate governance research company, just eight lucky CEOs in a stock-option-based Great Recession lottery had shared a quarter-billion-dollar profit as of Aug. 4. That was an average of $31.6 million each, in addition to their regular pay and perks.

The biggest winner? Sirius XM Radio (SIRI.O) CEO Mel Karmazin, who was up more than $75 million on a huge grant of 120 million options he got in June 2009 as Sirius stock traded down to just 43 cents. The stock recently went for $1.06.

He was followed by Ford Motor (F.N) CEO Alan Mulally and Starbucks (SBUX.O) CEO Howard Schultz, up $55.7 million and $44.9 million, respectively. Oracle (ORCL.O) CEO Larry Ellison took fourth place, up $26.3 million on Great Recession stock grants. (The Corporate Library’s list of eight appears below.)

Here’s how this CEO pay bonanza works.

Stock down? Have a bunch more
As the credit crunch tanked the markets during 2008 and early 2009, almost 200 companies shifted into overdrive on stock options awards. They handed out grants to top executives at a pace that far exceeded anything we’ve seen in recent history. Stockholders might have found that an interesting priority, given that all those options tended to dilute earnings and hold down stock prices.

When the market rebounded, most stocks went with it, and these CEOs made out like bandits.

Pay experts suggest companies instead might have considered that they were issuing new options near longtime lows during a crisis and adjusted the number of grants downward.

“It seems that it is always upside for the CEO, and there is never an adjustment made so that they suffer in the slightest,” says Greg Ruel, one of the authors of the Corporate Library study, called the 2010 Mega-Grants Survey.

All the execs in the Corporate Library study are based in the U.S., where, by the way, CEOs already made far more than their European counterparts for the same work, even without these options bonanzas.

My earlier column included three CEOs who also made The Corporate Library’s list of the eight biggest winners, including Ford’s Mulally at No. 2. Here’s a look at the three other members who make up the top four.

A Sirius-ly big score
By far, Karmazin, of Sirius XM Radio, came out on top in the list of Great Recession options winners. Thanks to the timing of that 120 million-option grant on June 30, 2009, Karmazin got an extremely favorable exercise price of just 43 cents. (Options give recipients the right to buy stock in the future at prices set when the options are issued.)

Karmazin was up as much as $96 million at the stock’s recent peak in May, though that’s slid now to a mere $75.6 million.

Sorry about that, Mel. But in a media world where the rank and file suffered big layoffs in the recession — and as Sirius has laid off many since its merger with XM Radio — you’ve managed to make a bundle.

Karmazin’s fans might argue he is worth all this money because he’s orchestrating what looks like a successful turnaround — the main reason I bought Sirius stock a few months ago. In early August, Sirius XM Radio announced 16% revenue growth and a sharp gain in subscribers. Plus Karmazin is paying down debt, which has been a big concern among investors.

But with the stock down from the $5 range when he took over, investors have suffered hefty losses on Karmazin’s watch. His giant grant spared him some of that pain, replacing a 2004 grant of 30 million options with an exercise price of $4.72 a share — basically worthless due to those stock losses.

Worth it or not, Karmazin doesn’t have to do anything to collect all that loot, thanks to some twists in his option contract.

The Sirius board failed to put any performance metrics into the four-year vesting schedule for his options. In other words, if Sirius stock just follows the market up as the economy recovers, he will get to cash in all those options within four years.

And if he leaves the company and someone else does a great job in his shoes, Karmazin will still reap rewards. That’s because, unlike most employees, Karmazin keeps all those his options even if he leaves the company during that period, unless he’s fired for serious misconduct.