Retention bonus motivates CEOs to stick with employer

By Published on .

Edward e. whiteacre Jr., chairman-CEO of SBC Communications, claims the top compensation package of $22.6 million for 300 chief executives pulled from the advertiser, media and agency companies ranked in Advertising Age annual issues in 1999.

Mr. Whiteacre's compensation, as in most other cases charted, had less to do with salary ($1.16 million) than with other forms of pay.

The payoff came in the form of a $5 million bonus and a $12.6 million special retention award, part of his $16.5 million in non-salary or bonus pay. The latter was the biggest such award among these high-flying execs.


Other top execs at SBC also received so-called retention shares, justified, the company says, to retain its executives in heavy demand in the fast-growth telcom sector.

The pool of executives in this listing are from public companies among Ad Age's 100 Leading National Advertisers, 100 Leading Media Companies, the public ad organizations in the Agency Report and not-for-profit groups of the advertiser, media and agency communities.

Total compensation includes proxy categories: salary, bonus, other annual payments, long-term incentive payout and a catch-all called all-other compensation.

Growth in non-salary areas is related in part to the government's elimination of tax deductions for the salary portion above $1 million. An exec's paycheck is sweetened in other ways. The 300 drew a collective $761.4 million (up 11.6%), 32% of it in salary, 42% in bonus, 20% in long-term incentive payouts, and 6% in all-other compensation. Salary grew 16%, bonus 11.8%, and the rest, 60.5%

Not included as part of an executive's total compensation in the charts (beginning Page S-14) are restricted stock awards typically based on the company's attainment of performance goals like earnings per share growth, return on equity or pre-tax earnings. Also not counted are gains from exercising stock previously awarded. The consistently strong run by the stock market this decade has brought the Midas touch to the wide variety of stock options in exec compensation packages.

As an example, Richard Jay Kay, chairman-CEO of Schering-Plough Corp., last year realized $13.4 million in exercising 576,000 shares, "gained" another $7.93 million in restricted stock awards (208,000 shares valued at $38.125/share) to be paid out later and 352,000 in options with a present-day value of $4.57 million. These options can be exercised over the next 10 years, their value enhanced by an appreciation in company stock. Apart from this, Mr. Kay took home $3.1 million in mostly salary and bonus.


Grey Advertising Chairman, President-CEO Edward H. Meyer claimed the largest agency salary at $2.9 million, but ranked third overall behind News Corp.'s Chairman-CEO Rupert Murdoch ($4.2 million in salary) and President-COO Peter Chernin ($3.2 million).

Charity led PepsiCo's Chairman-CEO Roger A. Enrico to accept only $1 in salary in 1998 (from $900,000 in 1997) and to ask the board to use the money to support front-line employees. The board proceeded to contribute $1 million to fund additional scholarships for children of these employees.

Salary, even at PepsiCo, is increasingly minimized by other forms of pay. Without salary, Mr. Enrico drew compensation of $4.08 million, split largely between a $2 million bonus and a long-term incentive payout of $1.93 million, the latter based on PepsiCo achieving a predetermined cumulative earnings per share growth target covering the previous four years.

Internet-related companies may hold back salary from their executives, and make up for it in other ways. Timothy Koogle, president-CEO of Yahoo!, got $195,000 in salary and no bonus, but received 550,000 in options based on an exercise price of $99 (Yahoo! was trading at $118.47 at the time). If exercised in 10 years (the term of the options) Mr. Koogle will realize a value of $34.2 million if the stock rises to $161.26, a 5% annual clip; if the stock price growth hits an annualized 10%, then the value reaches $86.8 million. Mr. Koogle exercised 253,070 options during the year, realizing a gain of $7.3 million.


Mr. Chernin drew the fattest bonus at $8.3 million. Second was General Electric Co.'s Chairman-CEO John F. Welch Jr. at $7.2 million. GE's proxy noted part of the board's justification for the bonus was an increase of more than $300 billion in GE's market value during Mr. Welch's 18-year reign.

Mr. Whiteacre, not far behind in bonuses, drew $5 million for "exceeding his value-added performance objective and transforming SBC from a regional carrier to a national and global competitor." During this pay period, SBC merged with Southern New England Telecommunications, integrated Pacific Telesis and agreed to buy Ameritech Corp.


William C. Steere Jr., chairman-CEO of Pfizer, blew the rest out of the water in value of long-term incentive payment at $13 million, a sum representing 100,000 shares of Pfizer stock awarded under the performance share award program.

Usually such long-term incentives in a bullish market are good as gold. But Lewis E. Platt, chairman of Hewlett-Packard, had a negative $443,726 in total compensation caused by the forfeiture of a $2.36 million long-term incentive payment (the value of 52,000 shares awarded in 1996) when H-P did not meet the three-year performance goal associated with the payment. He also drew $1 million in salary and $910,700 bonus.

Mr. Platt relinquished his CEO title in July to Carly S. Fiorina, hired away from Lucent Technologies. She came in at a base salary of $1 million, and a bonus annualized at $1.25 million but pro rated to her days in service during the fiscal year. She also got a $3 million cash payment for signing. As with other plans, stock options, restricted stock and restricted share units awarded her will send her total compensation package spiraling well above salary and bonus.


Premiums on company-owned life insurance, contributions to savings plans, unused vacation pay and cash awards based on the company's stock price performance granted years earlier are part of the all- other compensation proxy tag.

Top draw in this area was $13.2 million dished out to Melvin R. Goodes, who turned over his chairman-CEO title at Warner-Lambert Co. to Lodewijk J.R. de Vink in May of this year. He was awarded the sum when W-L achieved a share price set 10 years earlier.

Contributing: Megan Friedly.

Most Popular
In this article: