Top 10 Executives’ Average Pay Spirals Into Millions

In 1986, Western Digital Chairman Roger Johnson made more money than any of his peers in Orange County’s publicly held corporations. With base salary, bonuses and stock options, he grossed $966,479.

But even with a higher base salary, Johnson fell from the top of the list in 1987. Actually, he plummeted. While his company’s profits and sales were up considerably and Western Digital landed a coveted spot on the Fortune 500 ranking, Johnson wound up 19th on the list of the county’s highest-paid corporate executives.

And in place of Johnson’s six figures, first place was captured by a compensation package worth $8.5 million.

Johnson made $542,375 in 1987--more than enough to keep most people in caviar and Cadillacs--but ahead of him were seven health industry executives, six high-technology colleagues, three construction and real estate executives, and two service industry moguls.

The $542,375 figure could be low, however. Johnson exercised some stock options in 1987, but the company does not report annual totals, and he would not disclose his profit. The options income might not be accounted for in the company’s 1987 fiscal year in any event, he said.

While pay for the county’s top 10 executives averaged $777,100 in 1986, it skyrocketed to $2.4 million last year. The increase reflects huge profits posted by several executives who exercised stock options as their companies rode the stock market’s upward spiral through August of 1987.

Even so, the salaries received by the county’s top executives are well within the national norm, according to compensation specialists. A recent survey of all 106 publicly traded companies in the county showed that top executives’ cash compensation averaged $183,500 in 1987. For the top 75, the Times-Mercer Meidinger study shows, average cash compensation was $367,043.

Adding profits from stock options nearly doubles that figure to $654,937--which works out to $12,594.94 a week. That equates to $314.88 an hour, based on a 40-hour week.

Newer, Smaller Companies

Nice as that sounds, executive pay in Orange County is likely to be lower than in Los Angeles, San Francisco and San Diego--largely because the companies here tend to be newer and smaller.

Orange County companies also seem to be better at tying executive pay to performance. A higher portion of the companies have performance incentive programs, which tend to keep base pay low and reward executives when a company does well.

“This is probably because most of the companies in Orange County are newer and are innovative in their compensation plans,” said Bill Spear, a consultant with the compensation firm of Mercer Meidinger Hansen in Los Angeles.

Stock options are a favored type of incentive. In most cases, a stock option program grants executives the right to buy company stock at a fixed price within a certain time period, typically 10 years. Grants generally are made every year.

If the market price of the stock rises above the fixed option price, the option may be exercised. The executive’s gain is the difference between the option price and the market price.

Compensation experts say options help attune executives to the interests of their shareholders because the plans pay off if companies are managed in such a way that stock values climb.

“Stock options should be used far further down (the employment chain) in corporations. In the Silicon Valley, you’ve got companies where four out of five workers have options programs,” said David Thomsen, managing director of the Economic Research Institute in Newport Beach.

A growing number of Orange County companies, he said, have long-term incentive programs such as retirement or salary deferral plans. “These are good because they are tied to long-term performance of the company, not just to milking out a profit that year,” Thomsen said. Because the money in such programs is not available immediately, it does not show up as annual cash or “long-term compensation,” which generally refers to option plans.

Thomsen said many Orange County companies use stock options because “venture capitalists are most interested in companies where the top executives have a large ownership in their companies. And the way to get stock into their hands is through bonuses and options.”

At Micro D, a computer products wholesaler in Santa Ana, top managers “are paid in relation to performance. If we don’t make profits, we don’t get bonuses,” said Chairman Linwood (Chip) Lacy, who was among the county’s best-paid executives. “I think that’s only right.”

Lacy made $1.3 million last year: $294,600 in salary and a little more than $1 million from stock options. Micro D posted a 59% increase in sales for the year and a nearly 75% hike in profits.

‘I’ve Never Felt Overpaid’

“I think I’m fairly paid, and I’m very satisfied. I’ve never felt overpaid,” Lacy said.

Bertrand Weidberg, vice president and general counsel of MAI Basic Four, a computer manufacturer, said the stock options that brought him almost $1.1 million last year were granted in 1985. Thus, he said, his option profits really reflected the performance of the company--and his performance--over a three-year period.

Weidberg was one of several Orange County executives who earned more than the chief executives of their companies because of options and bonus plans.

The makeup of Orange County’s 75 highest-paid executives reflects the county’s business base--diversified and heavily oriented toward service and technology firms. The 75 executives represent 11 high-tech firms, 10 services companies, 6 health care and medical technology operations, 4 construction firms and 2 industrial companies. In size, the companies range from about $100 million in sales to more than $3 billion.

Only two women, Carol Miltner of Micro D and Kathryn Braun of Western Digital, were on the list.

Most of the companies were profitable in 1987 and rewarded their leaders correspondingly. There were several examples, however, of companies paying their top executives quite well despite severe financial problems.

The most striking is Cardis Corp., the Buena Park auto supplies wholesaler and operator of the Tuneup Masters auto repair shop chain. Although Cardis lost $54 million in the 27 months ended Dec. 31, it paid a salary of almost $1.5 million to Andy Granatelli.

Granatelli, the former race car driver who founded Tuneup Masters and later sold it to Cardis, was rewarded in part because the quick-fix tuneup shops--which he continues to run--were Cardis’ only moneymaking operation. His pay, however, also was tied to a five-year employment agreement he negotiated when Cardis acquired Tuneup Masters.

Another executive who did very well despite his company’s flagging fortunes was Milan Panic, chairman, president and chief executive of ICN Pharmaceuticals. The company makes ribavirin, a drug that has never been approved for general use in the United States but has been touted over the years as an effective medication for a number of viral diseases.

Stock Skyrocketed in 1987

Panic and ICN have been pushing ribavirin as a potential medication for AIDS, and the company’s volatile stock skyrocketed in 1987 on speculation that the Food and Drug Administration was about to issue favorable reports on the medication.

Panic drew a base salary last year of $393,424 and exercised stock options when investor interest in ICN was high. He posted a $513,750 profit from those transactions, boosting his total compensation for the year to $907,174.

At the same time, ICN posted a $126.6-million loss for the year--because of losses in its corporate investment portfolio.

At the top of the Orange County compensation list were the founders of Community Psychiatric Centers, an international operator of psychiatric hospitals and kidney dialysis centers. The firm posted a 23% gain in sales and a 17% increase in profits last year--factors that helped drive the company’s stock to a high of about $32 last summer.

By exercising options that they were granted when the stock was selling for considerably less, Community Psychiatric’s top two officers became not only the highest-paid executives in Orange County, but the second- and third-highest-paid in the state.

Chairman Richard Green, who serves as the company’s chief financial officer from his office in San Francisco, made $6.35 million by exercising options. Added to his base salary of $525,000, that gave him total compensation for the year of almost $6.9 million.

But co-founder James Conte, who is Community Psychiatric’s president and chief executive and who runs the operation from its new headquarters in Laguna Hills, made $7.6 million by exercising options and pulled in an additional $925,000 in salary for a total of $8.5 million.

No one else in the county came close.

Third-place finisher Fred Anderson, vice president and chief financial officer of MAI Basic Four, added almost $1.5 million in stock option profits to his base salary of $230,389 for a total of $1.7 million.

LINWOOD LACY

Chairman, Micro D.

Total 1987 compensation: $1,320,599.

He says he has never felt overpaid. The company had earnings of $5.5 million in 1987 and sales soared 59%. Most of his annual compensation came from stock options, with his base salary accounting for only $294,600.

FRED ANDERSON

Vice president, MAI Basic Four.

Total 1987 compensation: $1,707,889.

Anderson, who placed third on the list of Orange County’s 75 highest-paid executives, has a salary that was $128,000 less than company president William Patton Jr.’s. But Patton wound up as No. 34. The company’s stock option plan enabled Anderson to add nearly $1.5 million to his compensation for the year. Several other MAI Basic Four executives also out-earned the president because of profits on stock options.

MILAN PANIC

Chairman, ICN Pharmaceuticals.

Total 1987 compensation: $907,174.

Profiting from a wave of investor speculation as favorable rumors about ICN’s anti-virus medication drove the company’s stock price upward, Panic exercised stock options that netted him a cool $513,750. Ironically, his company lost $16 million in 1987 because its investment portfolio took a beating after the market crashed in October.

EMIL MARTINI

Chairman, Bergen Brunswig.

Total 1987 compensation: $738,326.

The pharmaceuticals and consumer electronics company did well in 1987 and Martini and his brother, Robert--the company’s president-- profited from that performance. Under an executive Incentive Bonus Plan, Emil Martini’s base salary of $438,326 was augmented with a $300,000 bonus. Robert Martini picked up an extra $240,000 and bonuses added $377,000 to other executives’ annual pay.

ORANGE COUNTY’S HIGHEST-PAID EXECUTIVES

Executives at publicly held Orange County companies ranked by total compensation reported for the most recent fiscal year.

Name Company James Conte Community Psychiatric Centers Robert Green Community Psychiatric Centers Fred Anderson MAI Basic Four Andy Granatelli Cardis Corp. Bertrand Weidberg MAI Basic Four Linwood Lacy Micro D Ronald Foell Standard Pacific LP Godfred Otuteye Micro D Milan Panic ICN Pharmaceuticals Arthur Svendsen Standard Pacific LP Robert Garbutt MAI Basic Four Emil Martini Bergen Brunswig Merrill Butler Financial Corp. America Glenn Buell Jr. Comarco Richard Conte Community Psychiatric Centers Carl Karcher Carl Karcher Enterprises Robert Martini Bergen Brunswig Robert Gumbiner FHP International Roger Johnson Western Digital David Blackford Far West Financial Robert Conger Comarco William Popejoy Financial Corp. America Victor Indiek Financial Corp. America Clifford Piscitelli Far West Financial Peter Churm Fluorocarbon Harold Clark Micro D David Bright National Education Corp. William Belzberg Far West Financial David Tappan Jr. Fluor Frank Ciotti For Better Living Carmelo Santoro Silicon Systems Donald Karcher Carl Karcher Enterprises Leslie Mccraw Fluor William Patton Jr. MAI Basic Four Lee Bangerter Care Enterprises Melvin Jaffee National Lumber Albert Wong AST Research Thomas Yuen AST Research Edgar Brower Pacific Scientific Harry Woodcock TS Industries Charles Strauch MSI Data F.G. Fabian Jr. For Better Living Safi Qureshey AST Research John Wright Fluor Walter Hahne For Better Living George Reinhardt Bergen Brunswig Hugh Coble Fluor J. Michael Hagan Fluorocarbon Frank Henry Far West Financial Albert Nichols Nichols Institute A.J. Moyer Western Digital Robert Wattenberg Comarco J. Karl Kreutzer J.M. Peters Frank Fullerton J.M. Peters Jeffrey Sherman Armor All Adam Jerney ICN Pharmaceuticals William Bowers MSI Data D.P. Kennedy, First American Financial James M. Peters J.M. Peters Robert J. Trapp J.M. Peters Vincent Kontny Fluor Alvin Baileys Safeguard Glen McConnelee Care Enterprises Sol Zechter Emulex J.W. Cwiertnia National Education Edson D. Warner J.M. Peters John Lillicrop Wynn’s International Stephen Frankel Emulex Carol Miltner Micro D Robert Milo EECO D.L. Rock Smith International Loren Pannier Carl Karcher Enterprises Joe E. Hall Transcon Arthur Mancini MAI Basic Four Ronald Tapper National Education

1987 Name Title 1987 Cash Long Term James Conte President $925,000 $7,640,303 Robert Green Chairman 525,000 6,353,424 Fred Anderson Vice President 230,389 1,477,500 Andy Granatelli Chairman (Subsidiary) 1,485,730 Bertrand Weidberg Vice President 235,480 1,096,875 Linwood Lacy Chairman 294,600 1,025,999 Ronald Foell President 983,591 Godfred Otuteye Sr. Vice President 200,400 718,860 Milan Panic Chairman 393,424 513,750 Arthur Svendsen Chief Executive Officer 881,180 Robert Garbutt Vice President 236,222 617,969 Emil Martini Chairman 738,326 Merrill Butler Exec. Vice President 730,897 Glenn Buell Jr. Chairman 270,000 440,658 Richard Conte Exec. Vice President 220,000 390,233 Carl Karcher Chairman 608,370 Robert Martini President 585,333 Robert Gumbiner Chairman 546,000 Roger Johnson Chairman 542,375 David Blackford President 540,882 Robert Conger Group President 100,000 440,658 William Popejoy Chairman 539,717 Victor Indiek Exec. Vice President 536,275 Clifford Piscitelli Exec. Vice President 533,400 Peter Churm Chairman 471,710 Harold Clark President 213,800 252,291 David Bright President 459,000 William Belzberg Chairman 450,000 David Tappan Jr. Chairman 450,000 Frank Ciotti Exec. Vice President 221,746 170,485 Carmelo Santoro Chairman 390,000 Donald Karcher President 365,764 Leslie Mccraw President 360,854 William Patton Jr. President 358,702 Lee Bangerter Chairman 338,000 Melvin Jaffee President 337,714 Albert Wong Exec. Vice President 331,900 Thomas Yuen Exec. Vice President 330,700 Edgar Brower President 329,914 Harry Woodcock President 329,856 Charles Strauch President 328,746 F.G. Fabian Jr. Chairman 328,575 Safi Qureshey President 328,100 John Wright Former President 235,190 87,689 Walter Hahne Exec. Vice President 311,813 George Reinhardt Vice President 309,170 Hugh Coble Group President 308,942 J. Michael Hagan President 307,580 Frank Henry Exec. Vice President 289,380 Albert Nichols Chairman 287,156 A.J. Moyer Vice President 283,640 Robert Wattenberg Group President 124,661 154,170 J. Karl Kreutzer Division President 267,450 Frank Fullerton Vice President 267,450 Jeffrey Sherman President 262,842 Adam Jerney Exec. Vice President 261,135 William Bowers Chairman 257,016 D.P. Kennedy, President 256,220 James M. Peters Chairman 256,000 Robert J. Trapp Vice President 252,450 Vincent Kontny Group President 250,391 Alvin Baileys Chairman 250,000 Glen McConnelee President (Subsidiary) 249,383 Sol Zechter Sr. Vice President 166,673 81,199 J.W. Cwiertnia Exec. Vice President 247,500 Edson D. Warner Vice President 247,183 John Lillicrop President 243,000 Stephen Frankel President 242,917 Carol Miltner Sr. Vice President 174,900 66,300 Robert Milo President 237,972 D.L. Rock President 161,920 73,666 Loren Pannier Group Vice President 234,500 Joe E. Hall President 228,800 Arthur Mancini Vice President 225,314 Ronald Tapper Vice President 224,910

Name 1987 Total James Conte $8,565,303 Robert Green 6,878,424 Fred Anderson 1,707,889 Andy Granatelli 1,485,730 Bertrand Weidberg 1,332,355 Linwood Lacy 1,320,599 Ronald Foell 983,591 Godfred Otuteye 919,260 Milan Panic 907,174 Arthur Svendsen 881,180 Robert Garbutt 854,191 Emil Martini 738,326 Merrill Butler 730,897 Glenn Buell Jr. 710,658 Richard Conte 610,233 Carl Karcher 608,370 Robert Martini 585,333 Robert Gumbiner 546,000 Roger Johnson 542,375 David Blackford 540,882 Robert Conger 540,658 William Popejoy 539,717 Victor Indiek 536,275 Clifford Piscitelli 533,400 Peter Churm 471,710 Harold Clark 466,091 David Bright 459,000 William Belzberg 450,000 David Tappan Jr. 450,000 Frank Ciotti 392,231 Carmelo Santoro 390,000 Donald Karcher 365,764 Leslie Mccraw 360,854 William Patton Jr. 358,702 Lee Bangerter 338,000 Melvin Jaffee 337,714 Albert Wong 331,900 Thomas Yuen 330,700 Edgar Brower 329,914 Harry Woodcock 329,856 Charles Strauch 328,746 F.G. Fabian Jr. 328,575 Safi Qureshey 328,100 John Wright 322,879 Walter Hahne 311,813 George Reinhardt 309,170 Hugh Coble 308,942 J. Michael Hagan 307,580 Frank Henry 289,380 Albert Nichols 287,156 A.J. Moyer 283,640 Robert Wattenberg 278,831 J. Karl Kreutzer 267,450 Frank Fullerton 267,450 Jeffrey Sherman 262,842 Adam Jerney 261,135 William Bowers 257,016 D.P. Kennedy, 256,220 James M. Peters 256,000 Robert J. Trapp 252,450 Vincent Kontny 250,391 Alvin Baileys 250,000 Glen McConnelee 249,383 Sol Zechter 247,872 J.W. Cwiertnia 247,500 Edson D. Warner 247,183 John Lillicrop 243,000 Stephen Frankel 242,917 Carol Miltner 241,200 Robert Milo 237,972 D.L. Rock 235,586 Loren Pannier 234,500 Joe E. Hall 228,800 Arthur Mancini 225,314 Ronald Tapper 224,910

Sources: Mercer Meidinger Hansen and the Los Angeles Times.