Annual Meeting: April 10, 2017 Goodyear had a bad year in 2016. Revenues declined by 8%.  The stock lost value, with total shareholder return at -4.5%.

It shouldn’t be surprising then that the bonus for CEO Richard Kramer decreased from $11,577,753 in 2015, to $9,667,094 for 2016. This declining bonus suggests some allegiance to  of pay for performance.

However, total compensation year over year actually increased. For 2015 Kramer received $19,307,800 and in 2016 he received $19,798,104. How is this possible?

Well, while lowering the bonus, the board raised Kramer’s salary by 18%, to $1.3 million. In explaining the rationale for the increased the boards cited the development and completion of a strategic plan. They also noted that the increase was, “to move him closer to median market base salary rates given his tenure in his current role as CEO.” Increases in salary that seem born of a sense of entitlement, driving up bonus and retirement payments in future years, as these are based on salary.

It also drives up pay at other companies. Next year this 18% increase will be used to justify salary increases elsewhere. Such ratcheting up of pay is always problematic, but particularly so for those who hold funds in indexes. While there might be some who look at the absolute dollar amount of the increase and shrug, shareholders who are long term investors should pay close attention, because the increase will cascade through a system. That’s a part of how we arrived at the place of overpaid CEOs in the first place.

In May of last year State Street Global Advisers put out a report entitled, “Guidelines for Mitigating Reputational Risk in C-Suite Pay” noting that found the stable nature of pay packages for 2015 surprising “when evaluated in the context of poor performance and shareholder returns.” The report identified “methods used by companies to circumvent the pay-for-performance alignment” including the one described above, “Increased base salary and/or long-term stock grants that made up the decrease in short-term bonus payouts.”

Kramer’s stock awards and option awards did increase, though only slightly. Change in pension value was a bigger driver of the total compensation figure. There are those that argue that such increases should not be considered as the variations from year to year are driven by external factors. However, it does represent real money available to this CEO and not to those who do not have pensions. Kramer’s total pension is currently valued at nearly $18 million dollars.

I’d love to see someone do a deeper analysis of the calculation of the bonus which, while it didn’t meet target, was paid above threshold. The company discloses a significant number of exclusions that were used in calculating the EBIT and free cash flow figures. While they generally seem in line with what other companies do, a careful examination is merited. Also of note is the company’s large stock buybacks. As put it in a recent article entitled, Worrisome Headwinds at Goodyear Tire, “The company’s strategy rather seems like a bit of bribery. Our sales and profits are going down, but we’re going to pay you dividends and increase share repurchases to ‘enhance shareholder value.’”