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updated: 8/26/2011 12:35 PM

P&G CEO's pay rises to $16.2 million in 2nd year

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Associated Press

CINCINNATI -- Procter & Gamble Co. CEO Bob McDonald's pay jumped to nearly $16.2 million in his second year at the helm of the world's largest consumer products maker, which boosted sales behind strong emerging market growth during a continued sluggish U.S. economy.

McDonald, also P&G's chairman, completed his second year June 30 as chief of the maker of Pampers diapers, Crest toothpaste and Gillette shavers. P&G sales rose 5 percent for the year to $82.6 billion, and profits reached company targets. Some 90 percent of McDonald's pay is tied to performance. His salary is $1.6 million.

P&G said in the regulatory filing Friday that McDonald's percentage increase over last year -- 23 percent -- was inflated by the way long-term bonuses have been granted over the last three years and a change in how they are reported to the Securities and Exchange Commission. The company's compensation committee stated that when adjusted for timing of when bonuses were granted and reported earlier, McDonald's total compensation package "increased mid-single digits versus prior year."

The committee's report said it uses CEO pay at 25 other big companies, including Wal-Mart Stores Inc., General Electric Co. and Johnson & Johnson, as a guide in setting McDonald's compensation and said his pay for his second year remained below the median for the peer CEOs. His predecessor, A.G. Lafley, earned $23.5 million in the last of his nine years as CEO.

While P&G's core earnings per share growth of 8 percent ($3.95 per share) hit the 7-9 percent target for the fiscal year ended June 30, organic sales growth of 4 percent was below a bonus target of 5 percent. Organic sales exclude the impacts of currency fluctuations, acquisitions and divestitures.

Sales in the United States, Japan and developed countries in Europe were nearly flat, but P&G saw double-digit sales increases in emerging markets such as China and India. The report said P&G increased sales and market share in most of the major countries it competes in. Taking over P&G during a recession, McDonald has expanded the overseas presence of P&G products and offered more price tiers to reach households of varying budgets -- a Gillette razor introduced in India sells for pennies, and the company sells "Basic" versions of Charmin toilet paper and Bounty paper towels to head off trade-down to store brands by U.S. shoppers.

"We continue to make good progress in a difficult environment on the company's long-term growth strategy of serving more consumers in more parts of the world more completely," the compensation committee stated.

The filing showed McDonald got a 14 percent salary raise from $1.4 million and a bonus of $2.63 million, along with stocks and options awards worth nearly $11.8 million. McDonald's other compensation included personal use of company aircraft worth $97,670. He is required to use company planes for all travel, including with family.

The 58-year-old Gary, Ind., native is a West Point grad who joined P&G in 1980. P&G's annual shareholders meeting will be Oct. 11 in Cincinnati.

The Associated Press formula calculates an executive's total compensation during the last fiscal year by adding salary, bonuses, perks, above-market interest the company pays on deferred compensation and the estimated value of stock and stock options awarded during the year. The AP formula does not count changes in the present value of pension benefits. That makes the AP total slightly different in most cases from the total reported by companies to the SEC.

The value that a company assigned to an executive's stock and option awards for 2010 was the present value of what the company expected the awards to be worth to the executive over time. Companies use one of several formulas to calculate that value. However, the number is just an estimate, and what an executive ultimately receives will depend on the performance of the company's stock in the years after the awards are granted. Most stock compensation programs require an executive to wait a specified amount of time to receive shares or exercise options.