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Pay vs. performance moves to front burner
Last year was hardly a great 12 months for corporate profits or stock market returns. But it wasn't all that bad for many chief executives.
A number of CEOs in Illinois and northwest Indiana saw their pay spiral higher, even as their companies' stock prices tumbled.
Yet at other companies that saw a banner year for the price of their stock, the pay of the top executive held steady or barely inched ahead.
But the mood is changing, and the pressure is on to hold the line on compensation for corporate chiefs, said Wally Scott, a professor at Northwestern University's Kellogg School of Management.
"There is incredibly increased scrutiny of pay by boards of directors and compensation committees at corporations," Scott said. "This subject is on the front burner."
Below are explanations from the top- and bottom-performing companies in Illinois and northwest Indiana, compared by pay increases for their CEOs versus stock performance in 2002.
Only cash compensation was considered, not stock options.
Companies were rated positively if their CEOs received relatively modest pay increases, or took pay cuts, while their stocks did well. Companies were rated poorly if executives got large pay hikes while their stocks suffered.
Wm. Wrigley Jr. Co.
Cash compensation for William Wrigley Jr. declined 49 percent last year, even though the company's total return on its stock rose 8 percent. That made Wrigley and his company the best performer among local CEOs and their firms.
Since Wrigley took over at the Chicago-based chewing gum-maker after the 1999 death of his father, he has worked to shed its stodgy image--even making an audacious bid for chocolate giant Hershey. His compensation for last year was listed as $4.89 million.
"I don't think anyone would consider Wrigley as being over the top" in its pay practices, said Christopher Perille, a company spokesman. "We are relatively conservative, but at the same time we try to be competitive. Bill's compensation is the same."
General Growth Properties Inc.
Chicago-based mall owner General Growth posted a 41 percent return on its stock during 2002, but John Bucksbaum, its chief executive, hasn't asked for a raise in three years, earning just $225,000. He got no bonus and no stock options.
His father, Matthew, earned $200,000 as co-founder and chairman of the real estate investment trust.
But that doesn't mean the Bucksbaums missed out on the REIT's strong showing. Together, they control 19 percent of the operating partnership through which General Growth owns its regional shopping centers, including Northbrook Court.
And they have the option to convert that partnership interest into a 25 percent stake in the REIT, with a market capitalization of more than $12 billion.
Asked if he was underpaid, John Bucksbaum said: "Relative to others, you can draw your own conclusions, but it's something I choose to do. There's more for shareholders and other employees."
At hair products giant Alberto-Culver, CEO Howard Bernick got no raise last year. In fact, his compensation fell slightly. Meanwhile, the return on shares of the Melrose Park-based company was 27 percent.
Bernick's $1.45 million base salary will rise 6 percent in 2003, after remaining unchanged for the previous three years. His total compensation last year was listed as $9.94 million.
Bernick noted that the company performed above the 90th percentile of the S&P 500 index in 2002, helping boost his compensation and prompting a long-term incentive payment in cash of $2 million.
For 11 consecutive years, Alberto-Culver has seen sales grow at a compound rate of 11 percent and profits at 14 percent.
"We've done a good job of creating value for our shareholders and employees," said Bernick.
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Chairman and CEO Githesh Ramamurthy took only a 3 percent raise last year, and he said his decision involved nothing fancy.
"I felt that because our average employee was getting a 3 1/2 percent raise for the year, I should get less," he said. "I wanted to send an important message to them that it was their hard work that created our success."
Ramamurthy said the company's share price nearly tripled last year, to a market capitalization of $478 million. Chicago-based CCC provides software that speeds up settlements of auto accident claims. Ramamurthy's compensation for last year was listed as $859,149.
CenterPoint Properties Trust
John Gates, co-chairman and CEO, took a 10 percent slice in pay last year, to about $770,000, as the Oak Brook REIT's earnings declined for the first time in its nearly 10-year history. Gates' stock options were pared back by a quarter, to nearly 57,000 shares.
The profit decline stemmed from a $41.5 million charge against earnings because of its investment in the former headquarters of bankrupt promotional products company HA-LO Industries Inc.
"We have a very disciplined pay-for-performance system," Gates said. "Because of that writedown, we did not hit our goals, and senior management all got dinged--myself in particular. That's the way it should be. You've got to take the good with bad, and unfortunately 2001 was the bad."
Yet CenterPoint's stock rebounded last year, with a return of more than 19 percent.
In March, Gates got a 42 percent raise in his salary and bonus. His stock options were boosted by nearly two-thirds, to 93,250 shares. Last year, his total compensation was listed as $2.92 million.
The bottom performers were:
Sears, Roebuck and Co.
Hoffman Estates-based Sears ranked lowest among local firms when Chairman and CEO Alan Lacy's cash compensation was compared with the return on Sears stock.
Lacy received a $1.8 million bonus, nearly twice his 2002 annual salary, in a year when Sears stock lost nearly half of its value. His compensation for last year was listed as $2.87 million.
Sears spokeswoman Jan Drummond said part of Lacy's 2002 incentive was based on improved earnings per share. Sears reported per-share earnings of $4.34 in 2002, nearly double the $2.25 for 2001.
Also factored into Lacy's performance bonus was the company's ability to hit certain key strategic initiatives, Drummond said. Those included the introduction of the Covington apparel line and a re-engineering of Sears' stores.
Despite a dismal 2002 for Motorola's shareholders, the Schaumburg company's board awarded Chairman and CEO Christopher Galvin a $1.5 million bonus, more than doubling his cash compensation to $2.8 million. His total compensation came to $11.88 million.
Motorola's stock return fell nearly 42 percent last year, including the impact of dividends, compared with a 22 percent decline for the Standard & Poor's index.
Motorola said bonuses for Galvin and other executives reflected the fact that the company exceeded most of its financial goals for the year.
The awards "were based on the company's return to profitability during the second half of the year despite declining sales due to weakness in the company's key markets," the company said.
At GATX, cash compensation for CEO Ronald Zech was heavily influenced by the effects of the Sept. 11 terrorist attacks.
"We are involved in aircraft leasing, so last year's results were very volatile. Executive compensation was adjusted accordingly by our board," said Robert Lyons, vice president of investor relations.
He said the board wanted to guarantee stability at the top level of Chicago-based GATX, in light of the many difficulties seen in the transportation leasing business.
The company saw a big drop in share price, while compensation for Zech zoomed by more than 224 percent.
But that compensation included $750,000 paid last year, even though it was part of a three-year employment package, Lyons noted.
As for Zech's salary, "it went up, but that was not a significant move," he added. His compensation last year was listed as $5.8 million.
Horace Mann Educators Corp.
At Horace Mann, the Springfield-based insurer, CEO Louis Lower received a salary increase of nearly 9 percent last year, said Dwayne Hallman, senior vice president for finance. Lower's total compensation was listed as $1.05 million.
Hallman said shareholders were given a full explanation of Lower's compensation in the annual proxy statement.
U.S. Cellular Corp.
Total return on the company's stock last year declined nearly 45 percent, but the cash compensation of U.S. Cellular chief executive John E. Rooney rose by 18 percent.
Kenneth Meyers, chief financial officer for U.S. Cellular, said the stock market may not be recognizing the company's true performance.
"Over the past year, wireless companies' stock prices were down 50 to 60 percent," he said. "Sprint PCS stock has fallen by perhaps 80 percent. We've seen some wireless companies go bankrupt."
He said compensation in such an environment needs "to look at what is being done to build long-term value. A lot of strategically important projects were completed."
A big step for the company was moving into the highly competitive Chicago wireless market, with its purchase of PrimeCo. Rooney's compensation for last year was listed as $1.98 million.