Options seal the top-level deal

By Published on .

Options realized" has a "eureka" sound to it, as if gold dust were discovered at the bottom of a pan.

How about nuggets!

Options realized is the mother lode of CEO pay. This is stock awarded in prior years that has become vested and sold for a tidy profit. As a form of pay, it ties CEO performance to shareholder value.

Five million options cashed in by Michael S. Dell, chairman-CEO of Dell Computer Corp., for a $233.3 million gain, anointed Mr. Dell the No. 1 paid executive in 1999 among the executives from public companies ranked in Advertising Age's 100 Leading National Advertisers, 100 Leading Media Companies and Agency Report.

The value of those options, sending Mr. Dell's total compensation package to $235.9 million, was slightly greater than the sum of all the salaries of top executives pooled in the Advertising Age report on CEO pay (see Pages S-14, S-16 and S-18).

Mr. Dell's options windfall was only half the magnitude of the $569.8 million cashed in the previous year by Walt Disney Co. Chairman-CEO Michael Eisner.

options clearly way to go

For this pool of executives, salary hit a collective $223.8 million, up 10.1% from last year's survey; bonuses stood at $351.7 million, up 17%; and those options realized, $1.64 billion, up 2.4%.

Options carry a certain risk. Increasingly the currency of preference for CEO pay, they are exercised, after a vesting period, when the traded share price rises above the exercise price. The exercise price is usually 20% less than the stock price at the time the options were granted. The "realized" value is the difference between the market price of the stock and its exercise price.

But job performance and stock value don't necessarily share a cause-effect relationship. They did when Mr. Dell, who has won kudos building Dell into a computer powerhouse, exercised his options last year when Dell stock rose to the low 60s.

But the story is different in today's market. Dell has cut back its sales-growth projections three times this year, each time its stock has dropped. The latest restatement-that the growth rate would slow to a still remarkable 20% next year-sent the stock plummeting $5.38 to $23 in mid-November. The 805,595 options Mr. Dell received at the end of last year, at an exercise price of $44.69, are obviously worthless should that $23 share price hold true until and during the vested period.


Salary from this listing of top executives is only 8.5% of collective pay. Still, among the "salaried" leaders in the group, the weekly paycheck proved to be the main form of compensation for News Corp. Chairman-CEO Rupert Murdoch, who pulled a leading $4.2 million in salary, or 66% of his total compensation.

At the other extreme, a salary of $1 was drawn for the second consecutive year by PepsiCo Chairman-CEO Roger A. Enrico, who asked the board to put the remaining contractual $999,999 in a scholarship fund to support children of front-line employees.

John F. Welch Jr., chairman-CEO at General Electric Co., appeared higher in more compensation columns than any other executive. He was second in salary at $3.3 million, second in bonus at $10 million and first in long-term incentives of $31.3 million.

Warner-Lambert Co.'s Lodewijk J. R. de Vink lost his job as chairman-CEO when Pfizer bought the company early this year. But before the deal closed, Mr. De Vink cashed in $123 million in stock from October 1999 to last March.

Long-term incentives such as Mr. Welch's $31.3 million incentive and long-term stock awards are included in the "other compensation" column in the charts covering the next three pages.

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