"Stock options realized," the key element in the wealth of compensation tools comprising CEO pay, rose a heady 41.1% to claim 65.4% of the collective compensation package of top executives in public companies covered by Advertising Age's 100 Leading National Advertisers, 100 Leading Media Companies and Agency Report.
In this report, gleaned from proxy statements, stock options join salary, bonus, long-term incentive payouts and dollar-value awards, other annual payments and a catchall called all-other compensation (usually insurance, 401-K contributions, among special benefits) as key elements of total compensation.
WEILL AT THE FRONT
The compensation leader among these captains of industry was Sanford Weill, chairman-CEO of Citigroup, at $224.9 million total compensation, most of it ($196 million) realized from exercising 20 million options. Mr. Weill availed himself of Citigroup's "reload options program" that allows option holders to use Citigroup common stock to pay the exercise price of their options. The Citigroup executives then receive a new reload option to make up for the shares used.
Michael S. Dell, chairman-CEO at Dell Computer Corp., drew $199.6 million in compensation, down 15%. Some 99% of his compensation came from options exercised. He also refused a $1.8 million bonus in lieu of discounted stock options.
Growth in non-salary areas of compensation is in large part related to the government's elimination of tax deductions for the salary portion above $1 million and the concomitant linking of executive performance to stock movement.
Stock options represent stock awarded in prior years that has become vested. When sold the profits can be astronomical, because the exercise price is often as much as 20% less than the company's stock price at the time of the sale. Realized value then is the difference between the market price of the stock and its exercised price. The realized gain can be real or potential depending on whether or not the executive sells the stock. Ad Age does not differentiate between sale or retention of the stock.
2001'S BITE TO BE FELT
Although performance pay tied to the stock market is considered risk pay, there hasn't been much risk in pay in the 1990s. The downturn in the market in 2001 is sure to show there is some bite to the risk.
The bonus, which tends to attract greater sums than actual salary for these top executives, is usually paid in cash, and often deferred for tax considerations. In 2000, the bonus column for these executives took flight, literally in claiming 15% of total compensation, up from 12.5% in 1999 for these same executives. The biggest bonus was the largest: CEO Steve Jobs of Apple Computer got a $90 million Gulfstream V airplane as a bonus.
Top salary of $4.4 million went to Rupert Murdoch, chairman-CEO of News Corp. That salary represents growth of 4.8% over the previous year. Salary, accounting for 6.7% of total compensation for this group, down from 7.5% last year, ranged from Mr. Murdoch to the $1 token, each for Mr. Jobs and Roger Enrico, former chairman-CEO at PepsiCo. In 1998, Mr. Enrico asked PepsiCo to reduce his salary from $900,000 to $1 for 1998-2000 and place the difference in a scholarship fund for employee children.
Non-salary elements of Mr. Enrico's pay included a bonus of $4 million and options realized of $4.4 million. His competitor, Douglas Daft, chairman-CEO at Coca-Cola Co., got $87.3 million in restricted stock awards as his big compensation perquisite.