General Electric Co. stock increased in value $82 billion from 1994 through 1996; Kmart Corp. stock rose more than $25 per share from January 1996 through January 1997, reversing a three-year slide that devalued shares by 75%.
Growth in stock, attainment of earnings goals -- and in the case of the Kmarts of the world, cost cutting, divestiture of non-core assets and 200 store closings that strengthened the bottom line -- led corporate compensation committees to lavish cash and other incentives on their leaders. (see chart beginning Page S-16).
At this level, compensation no longer is salary and bonus. Wall Street's near-term view and new tax codes have fostered the creation of multiple payment vehicles -- a veritable package of deferred compensation, special appreciation rights, restricted stock awards, long-term payouts, stock options, funds accrued in insurance policies -- that in many cases provide value far greater than salary and bonus.
DOLLARS FROM FISCAL YEAR
The top executives in the publicly held companies surveyed in the accompanying charts drew 37% of aggregate compensation from payouts other than bonus (33% of total) or salary (30% of total). Figures were taken from the most-current proxy statements and represent dollar values, whether cash or stock, of payments made in the company's most recent fiscal year.
None was rewarded more handsomely than GE's Chairman-CEO John F. Welch Jr. The value placed on his compensation package in 1996 was $22 million -- with $15.1 million of that in long-term incentive payouts based on performance goals achieved over the previous three years.
Corporate ladder climbing con-tributed to compensation growth. Growth leader among the 207 salaries monitored was Campbell Soup Co.'s President-CEO Dale Morrison, who has held the post since July 1997, three weeks before the company's fiscal closing.
His compensation grew to $5.5 million, a 909% increase over his previous position as a senior VP. Salary claimed only about 10% of the total, the rest was attributed to a long-term stock award for achieving strong cash return on assets and corporate earnings per share, and to a reimbursement for stock options he had to forfeit when he left PepsiCo to join Campbell in 1995.
TAKING A HIT
Given the variables in the compensation package, it is not unusual for total compensation to take a hit -- at least in immediate payouts. Long-term payouts are another matter.
Total compensation for Walt Disney Co.'s Chairman-CEO Michael Eisner dipped 41.4% to $8.7 million for lack of a payout from Disney's long-term incentive program that had contributed $6 million to Mr. Eisner's compensation the previous year.
He more than made up for the decline when the company awarded him long-term options that mature in eight to 10 years. By then, the options' value will have appreciated to an estimated $195.6 million.
Such options aren't included in the lists' annual compensation because no dollar payments are made. Stock options are a favorite means of awarding performance.
Mattel President-CEO Jill E. Barad, one of only two women CEOs among the 133 CEOs charted, slipped 36.5% in total compensation to $3.5 million. The difference was a $2.2 million long-term payout in '95 vs. $420,000 in '96.
SALARIES LOSE THEIR SHINE
The corporate compensation environment increasingly is becoming cashless. Edward H. Meyer, chairman, president and CEO of Grey Advertising, tied with Mr. Welch in receiving the largest salary at $2.3 million on the list, most of which didn't end up in his pocket.
Grey deferred all but $930,000 of Mr. Meyer's cash compensation by placing it in a trust where it accrues interest for him and will be paid when he retires. He has an employment agreement until 2002.
Grey's treatment of Mr. Meyer's salary is mimicked by most companies. The top-paid generally draw $1 million or less in actual salary because tax laws deny tax deductions to publicly held corporations for annual com-pensation in excess of $1 million. Deferred payments (often the portion of salary alone) placed in such a trust preserves the tax deductibility of company pay-ments.
Several draw "nominal" pay compared to their ownership level in the company: Bill Gates drew about $350,000 in salary and $591,352 in total compensation, which is less than half that of Robert J. Herbold, exec vp-chief operating officer of Microsoft Corp. But Mr. Gates owns 22.3% of Microsoft stock, or 270.8 million shares; that is a value of about $35 billion given current stock prices.
Some don't even draw salaries, but that doesn't mean they don't get compensated. Barry Diller, chairman-CEO of HSN Inc., received a $2.5 million bonus instead of a salary. HSN also paid $1.28 million, portioned between his 401(k) and options to purchase $1.89 million in HSN shares.
Mr. Diller also received an interest-free, secured, promissory note for $5 million that he used to purchase 220,994 shares of HSN stock. He owns 27% of HSN.
Sole compensation for Sumner Redstone, chairman-CEO, Viacom, was a one-time grant of one million options of Viacom stock, each valued at $40. Options typically vest incrementally and bear an expiration date, and are a good performance enhancer because they become more valuable as the stock price increases.
In the case of Viacom, Mr. Redstone can exercise his option to sell a third of those shares after January 1998; all can be sold after three years. On a sale, he pockets the difference between the market price of the stock and its fixed $40 exercised price. His right to exercise the options expires in 2006 when his gains are projected to be $17.1 million.
BONUSES SELDOM ALL CASH
Bonus, like salary, can be a combination of cash and stock. John J. Curley, chairman, president-CEO, Gannett Co., received a bonus valued at $950,000, which included $637,500 cash and 3,214 shares of stock.
Floyd Hall, chairman, president-CEO of Kmart Corp., applied $874,750, or half his bonus, to purchase 140,000 restricted shares of common stock at a 20% discount provided by the company. Such stock prior to vestiture can be forfeited if an executive terminates employment. Usually the holder of restricted stock can vote those shares in the same manner as a stockholder holding common stock.
Alex Trotman, chairman and president-CEO, Ford Motor Co., deferred his $2.5 million bonus into an account to be tapped after his employment ends.
Philip J. Purcell, chairman-CEO of Morgan Stanley, Dean Witter, Discover & Co. had 20% of his bonus deferred mandatorily by the company, exchanging the funds for company stock.
Some bonuses kick in when an executive signs on. Michael G. Ferrel got a cash bonus of $500,000 when he signed on last November as president-CEO of SFX Broadcasting.
OTHER ANNUAL COMPENSATION
Retirement benefits and exercisable options theoretically encourage an executive to stay put, but in reality the hiring company often reimburses the executive for such losses.
Steven F. Goldstone, chairman and president-CEO of RJR Nabisco's Holding Co., drew $3.77 million outside of salary and bonus, most of it related to reimbursement for retirement benefits lost from previous employer, the law firm, Davis Polk & Wardwell. Mr. Goldstone joined RJR Nabisco as president in October 1995, and became chairman-CEO in May 1996, replacing Charles M. Harper, who retired.
Other forms of payment include premiums paid on term life insurance covering the executive. Life insurance policies are increasingly being employed by companies as tax-free repositories for investment gains from deferred compensation.
Companies maintain the policies by paying the premiums. Investment gains accumulate in the policies. A company either borrows from the policy or cashes it in when the CEO is ready to tap his deferred remuneration. A company may elect to hold on to the policy and pay the deferred compensation out of its own reserves in order to collect the death benefit (without owing taxes).
The corporation, of course, is the beneficiary of such policies. Century Communications paid premiums of $1.6 million on life insurance for its Chairman-CEO Leonard Tow and his wife Claire L., a senior VP there. Century also paid income and gift taxes attributed to that policy of $583,969 for a total of $2.18 million in other annual compensation.
The $910,408 Roger Enrico, chairman-CEO, PepsiCo, earned as other annual compensation was largely reimbursement for relocation and tax-related expenses.
On paper, MCI did not give a bonus to Bert C. Roberts, chairman, but channeled the bonus into 35,862 incentive stock units (ICUs) valued at $1,300,000. MCI increases the incentive of this investment plan by awarding additional ISUs equal to 25% of the amount of bonus deferred. Hence, Mr. Roberts received 8,966 matching ICUs (a $325,000 value when granted). These units become vested over time.
ICUs are a form of restricted stock which earn dividends and dividend equivalents at the same rate as dividends paid to shareholders.
The chart identifies 15 new CEOs in the most current fiscal reporting period. Retirement of the existing CEO elevated four; death of the existing CEO brought in another; poor performances left vacancies filled by two others; seven were nurtured into the role by chairmen who relinquished the CEO portion of their title.
Nurturing is a family affair at many media companies whose stock is closely held. Chris-Craft Industries, headed by Herbert J. Siegel, chairman-president, also employs his sons, John C. Siegel and William D. Siegel, both senior VPs and both compensated a little more than $1 million each.
Clear Channel Communications' L. Lowry Mays, chairman-CEO is joined by his sons, Mark P. Mays, president-chief operating officer, and Randall T. Mays, exec vp-chief financial officer. Ralph J. Robers, chairman, Comcast Corp., works with son, Brian L. Roberts, president.
Adam Young, treasurer of Young Broadcasting since its inception, is father of Vincent J. Young, chairman-CEO.
Mr. and Tow work side by side at Century Communications.
William Wrigley, president-CEO of Wm Wrigley Jr. Co., is father of William Wrigley Jr., vice president since 1991 and director since 1988. This is unusual among non-media companies, but then, the senior Mr. Wrigley controls about a third of company stock.
Sinecure the CEO post is not. Just ask James P. Schadt, replaced as CEO of Readers Digest Association this fall by former chairman George V. Grune, and William D. Smithburg, who stepped down as chairman, president-CEO of Quaker Oats Co., and replaced by Robert Morrison, former chairman-CEO of Kraft Foods. Both RD and Quaker are weathering tough times. Poor financial returns and declining stock price, led Tele-Communications Inc. Chairman-CEO John C. Malone to hire Leo Hindery as president in February 1997, demoting then President Brandan R. Clouston, to chief financial officer. When Mr. Clouston resigned eight months later, he became the 14th senior level exec at the company to leave since Mr.