For the Boss, Happy Days Are Still Here
By David Leonhardt
For the last decade, the chief executives of America's large corporations have offered their investors an implicit bargain. The executives made their companies ever more profitable, helping to create one of history's greatest bull markets. As a reward, they paid themselves more handsomely than ever before.
Some made $100 million in a given year. By the end of the 1990's, the average head of a big company took home more than $10 million before taxes.
Critics complained about income inequality, and some activist investors said that even mediocre managers were reaping windfalls. But the executives' rejoinder was always a strong one: we work for our shareholders, and they are getting rich right alongside us.
Then, in 2000, sales slowed. Companies warned that profit forecasts were too optimistic. Stocks fell.
And the chief executives of many of the nation's biggest companies changed the terms of the deal. To make up for the hit their portfolios took when the market dropped, they convinced their boards to give them thousands of additional stock options. A few even received permission to change the exercise price on their stock options or to use an accounting maneuver to cancel an earlier exercise of options that, in hindsight, looked financially foolish.
Other chieftains asked for more actual shares of stock, which -- unlike options -- have immediate value even in a bear market. Many executives also developed a newfound interest in dowdy old cash, winning moderate raises to their base salaries and huge increases in their bonuses and perks.
In short, the notion that corporate America pays its top managers based on their performance went the same way in 2000 as the idea that Internet stocks should be valued based on "page views." As a result, the fortunes of the people who run the nation's biggest companies and the people who own those companies -- the shareholders -- diverged sharply.
While typical investors lost 12 percent of their portfolios last year, based on the Wilshire 5000 total-market index, and profits for the Standard & Poor's 500 companies rose at less than half their pace in the 1990's, chief executives received an average 22 percent raise in salary and bonus.
The executives also received $1.7 million in stock, on average, up 14 percent from the previous year. And they were handed an average of $14.9 million worth of stock options, largely because they received almost 50 percent more options than in 1999, according to Executive Compensation Advisory Services, which conducted a survey of pay at 200 companies for Money & Business.
The typical hourly worker received a 3 percent raise last year, according to the Bureau of Labor Statistics. Salaried employees got about 4 percent more.
In total, the chief executives in the survey made an average of more than $20 million last year, including options, based on a widely used method for valuing them. The median pay package was $6.2 million.
"The risk is being taken out of executive compensation," said Judith Fischer, managing director of Executive Compensation Advisory Services. "You don't even have to make the performance goals. The board will pay you anyway."
Apple Computer gave its boss, Steven P. Jobs, a $90 million Gulfstream jet and 20 million stock options even as its shares fell 13 percent. Sprint's stock dropped 70 percent during the year, but it paid William T. Esrey $53 million in cash and stock, including 300,000 options he had not been scheduled to receive until this year. Coca-Cola gave M. Douglas Ivester, who resigned abruptly after a disappointing two-year tenure, an $18 million severance package. Then its board ignored a shareholder-approved bonus plan and gave the new chairman, Douglas N. Daft, a $3 million bonus although Coke missed its financial goals. In the process, the company lost its tax deduction on the bonus, since it was unrelated to performance.
"The guy's done a great job," said Herbert Allen, an investment banker in New York who is chairman of the compensation committee on Coke's board, echoing the most common rationale for last year's pay levels. Mr. Allen said Mr. Daft had inherited a difficult situation, quickly developed a plan to cut thousands of jobs, settled a racial discrimination lawsuit and improved Coke's relationship with bottlers and government officials. His pay, Mr. Allen added, "is probably directly in line with executives at other companies."
[Full text, if you haven't already vomited all over your screen, is at http://www.nytimes.com/2001/04/01/business/01COMP.html]
Carl
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