|At either extreme of 2005 executive earnings were IAC/InterActiveCorp Chairman-CEO Barry Diller with $295 million and Apple CEO Steve Jobs with $1.|
Jobs gets $1
Pay for corporate chiefs ranges from zero to infinity, give or take. The buck stopped with Apple Computer CEO Steve Jobs: He made $1 in fiscal '05. (Not to worry; his restricted shares, from an earlier grant, were worth $532 million.)
IAC/InterActiveCorp Chairman-CEO Barry Diller grabbed the most loot with a package worth $295 million at IAC -- and another $175 million from spinoff Expedia. Most of his haul came from cashing in old stock options.
Mr. Diller was one of five bosses to score triple-digit millions in Ad Age's review of pay deals for 178 executives who in 2005 led publicly held companies ranked in Ad Age's 100 Leading National Advertisers, 100 Leading Media Companies and Agency Report. The other triple players were Capital One CEO Richard Fairbank; Yahoo CEO Terry Semel; Dell Chairman Michael Dell; and Henry Silverman, then chairman of Cendant Corp. (since split into four companies).
Six executives took home less than $100,000: Mr. Jobs; Jerry Greenberg and J. Stuart Moore, former co-chairmen of web consultancy Sapient Corp.; and Google CEO Eric Schmidt and co-founders Larry Page and Sergey Brin. (Mr. Schmidt's stock is worth more than $5 billion; the co-founders each own about $15 billion in Google stock.)
For most of the CEOs, credit -- or blame -- for extraordinary compensation goes to stock-option grants. Options awarded in earlier years and exercised last year accounted for 57% of compensation for executives on this list.
Other long-term incentives, such as restricted stock grants, accounted for 16% of the typical pay package. Bonuses were about 15%. Salaries were just 8% of the average CEO's total compensation.
Base salaries up 6.5%
Still, base salaries weren't so bad: an average of $1.2 million, up 6.5%. By comparison, median pay for full-time American workers last year was $36,979, up just 1.7%, according to Census Bureau data.
It turns out the options game often has been rigged, with the grant date conveniently timed -- backdated -- to a previous low point for the stock. But that party is over. Numerous companies have revealed backdating schemes, and some high-profile executives have gotten the boot after taking the loot.
Most backdating incidents have occurred at tech companies, which have leaned heavily on options as incentive compensation. Among the options issues facing marketers, media and tech firms:
Sapient co-founders Messrs. Greenberg and Moore left their posts in October after the board found some option grants had "incorrect measurement dates" and were "inappropriately accounted for."
CNET Networks Chairman-CEO Shelby Bonnie resigned in October after the board disclosed "deficiencies" and "accounting errors" in options, "including in some instances backdating of option grants."
Apple Computer this year disclosed "irregularities" in past option grants. Mr. Jobs "in a few instances ... was aware that favorable grant dates had been selected, but he did not receive or otherwise benefit from these grants and was unaware of the accounting implications," Apple reported in October.
Cablevision Systems in August reported discrepancies in the grant dates and exercise prices for some options. The Securities & Exchange Commission and U.S. Attorney's Office are investigating.
The SEC is looking at Home Depot's stock-option practices.
Sun-Times Media in November reported it was investigating option awards "to executives and key employees" through 2003, when it stopped granting options.
Clorox Co. in August announced a $25 million pretax charge to correct "unintentional errors" in accounting for options.
Gap Inc.'s compensation
Gap Inc. in September said it would record an additional compensation expense of less than $5 million after reviewing its past 10 years of options and finding "some errors relating to stock-option grants to certain lower-level employees."
To be sure, executives sometimes luck into getting option grants at unusually depressed prices without backdating. Interpublic Group of Cos. in June awarded Chairman-CEO Michael Roth options to buy 577,700 shares over time at June 15's $8.655 price, near a three-year low.
Interpublic stock had fallen earlier that month after it announced a complex agreement for a line of credit; Mr. Roth around that time said, "I expected the stock to drop" because of the "unique structure" of the financing, but added, "I expect through the rest of the year it will level off when the impact of this (credit) transaction is understood."
Interpublic stock did rebound, trading around $12 in late November.
When the agency holding company made its options grant at June's depressed level, an Interpublic spokesman told Ad Age the timing was a coincidence; the board's compensation committee in March had picked June 15 as the pricing date for options.
For Mr. Roth, the timing adds up to a paper profit of $1.8 million based on last week's stock price. The ultimate value will depend on Interpublic's share price when options become exercisable in future years.