Executives’ Wallets Getting Fatter : Money: Already amply compensated, the state’s highest-paid executives made 46% more last year. Workers, on average, got a 5% increase.
Walt Disney Co.’s corporate offices in Burbank may have eclipsed Disneyland as the “happiest place on earth.”
Every year, Disney’s top executives collect their riches. Last year, they were the four highest-paid executives at California’s publicly held corporations.
Disney President Frank G. Wells became the state’s best-paid by exercising stock options and pocketing $46.1 million. Added to his $4.8-million salary and bonus, his total compensation was nearly $51 million.
Gary Wilson, Disney’s former chief financial officer, came in second with a pay package worth $49.5 million. Michael Eisner, chief executive, was third with $9.6 million. Richard Nunis, who heads a subsidiary, was a close fourth with $9 million.
High pay is fast becoming a tradition at Disney, where Eisner topped the 1988 compensation sweepstakes with $40.1 million and Wells followed with $32.1 million.
Although Disney may be in a class by itself--largely because pay is closely linked to the company’s sterling performance--soaring executive pay has become commonplace in California.
For the 100 highest-paid executives at the state’s publicly held companies, total compensation last year averaged $3.56 million, versus $2.43 million in 1988. Both figures include salary, bonuses, stock gains and perks.
That 46.5% pay hike means the average California executive earns $1,711 an hour based on a 40-hour workweek, compared to about $1,150 a year ago. The workweek is frequently longer for top executives, but the hourly rate remains high no matter how it’s figured.
The average California worker got a 5% pay hike last year, according to a survey by Towers, Perrin, Forster & Crosby.
Five years ago, seven-digit pay packages were relatively rare. Now, any chief executive of a large corporation seems to get one.
A Times survey found that 167 executives of California’s publicly held corporations made at least $1 million last year. Fifty of those got $2 million or more. The $1-million level was reached by only 91 California executives in 1988, and only 80 in 1987.
“The $1-million level seems to be becoming a psychological data point for CEOs,” said Fred Whittlesey, senior manager at KPMG Peat Marwick’s Los Angeles compensation-consulting group. “And there’s no question that the numbers will continue to grow at a rate that is in excess of the average employee’s pay.”
Getting shares of stock--through options or outright gifts--continues to be one of the biggest elements in total pay. Thirteen of the 25 highest-paid executives wouldn’t have made the top 100 without stock options and grants.
Data for the most recent Times survey of executive compensation was compiled from the proxy statements of about 500 publicly held companies with revenues of more than $20 million. The pay of more than 2,300 top officers was examined. Information on the compensation of executives at private companies is generally not made public.
What keeps pushing the salaries of high-paid executives higher? A corporate case of keeping up with the Joneses.
The system provides “automatic escalators” for higher-ups. Salaries for average workers are generally determined by budgets and, to a lesser extent, by competitive pressures for certain job classifications. But competitive pressures weigh far more heavily when determining increases for top officers.
Executives and directors hire consultants to survey competitors and determine what average pay levels are at companies of similar size in their industry. But who wants to award salaries to the top dogs that are just average? Instead, many companies choose to provide compensation that falls in the 75th percentile--meaning pay is higher than what is provided by 75% of comparable companies. If companies that compete in the industrial marketplace also compete on executive salaries, pay can spiral at an alarming rate.
Of course, not every executive makes megabucks. Million-dollar salaries are relatively rare at smaller companies. The average pay of the more than 2,300 California executives surveyed was $447,959. Even that figure overstates the pay of most executives because it is skewed by a handful of eight-digit earners. The median salary, which indicates half the salaries in the survey were higher and half lower, was $236,838.
Sometimes, pay doesn’t correlate with size. At California’s biggest company--Chevron, with $29.4 billion in revenue--the highest-paid officer is Vice Chairman J. D. Bonney, who earns $679,566. On the other hand, Los Angeles-based Maxxam’s revenue is only $2.4 billion, but Charles E. Hurwitz took home a salary and bonus of almost $4 million.
Although there is a rising clamor about “excessive” executive salaries, compensation consultants say there is little criticism of some of those who top The Times’ list of highest paid.
Despite the stunning pay levels at Disney, the company has emerged as a sort of role model of how to set up an executive compensation system.
Disney pays relatively modest annual salaries but allows executives to earn substantial bonuses if company performance is exceptionally good. And Disney’s performance has been outstanding.
The Disney pay system also gives executives stock options so that they can participate with shareholders when the company’s market value rises. And the stock has been a standout.
Last year, for example, Chief Executive Eisner’s salary was only $750,000. But because the company’s return on equity was a healthy 26%, Eisner earned an $8.8-million bonus. Wells’ salary amounted to $400,000, but he got a $4.4-million bonus based on the company’s performance.
“People like Eisner are, in some sense, real heroes,” said Kevin J. Murphy, associate professor at the University of Rochester and co-author of an exhaustive study on executive compensation. “They have pay that is strongly tied to the performance of their firms. They get tremendous rewards, but the rewards going to shareholders are even better.”
Management of the company by Eisner and Wells since 1984 has boosted Disney’s market value by several billion dollars. Shareholders have been enriched.
Consultants call performance-related bonuses, stock options and stock grants “high-risk” pay because managers get little if the company doesn’t meet goals for profitability, revenue growth, stock gains and other measures.
“I could justify paying at the top of the market for a skilled executive if most of that compensation was in high-risk pay,” said Gary Hourihan, president of Strategic Compensation Consultants in Los Angeles. “But the companies that load the number with low-risk elements, like a lot of salary and a lot of perks, are hard to defend.”
Although consultants are reluctant to point out specific examples of egregious pay packages, they note that they can be found by looking at pay levels for executives in comparable industries with comparable size and profitability.
“When any compensation contract gives an executive a package that is significantly higher than his peers and it is not warranted by performance, one would have to raise an eyebrow and question what the board was doing,” said Carl D. Jacobs, senior consultant at William M. Mercer Inc. in Los Angeles. “As a director, I would be examining the reason for that pay level.”
Despite the acknowledged superiority of pay plans based on performance, they haven’t been implemented as widely as many experts would like.
“The struggle goes on to try to pay for performance, but it is always difficult to do,” added Michael O. McCullough, principal at William M. Mercer. “For executives, you have to remember that their egos are involved here and pay is a score card, so there is a lot of competitiveness involved. Executives know what other executives are paid, and they ask to be similarly or better treated.”
Executives often get their way, too. Corporate directors are often afraid of losing a top officer even though a company’s performance is not top-notch. They may believe there is a shortage of skilled executives. They may accept management’s explanation that matters would have been worse without quick and clever action by top officers.
Something else works in executives’ favor: personal friendship. Directors are often personal friends of the chief executive. The chief executive may have invited them onto the board.
Executives also tend to serve on one another’s boards. Who would take a hard line on a chief executive’s pay if his own might be at issue later?
1. Frank G. Wells, Walt Disney Co. President, chief operating officer: $50,945,780
2. Gary Wilson, Walt Disney Co. Former exec. vice pres., chief financial officer: $49,488,410
3. Michael Eisner, Walt Disney Co. Chairman, chief executive: $9,589,360
4. Richard Nunis, Walt Disney Co. President of a subsidiary: $9,013,914
GUIDE TO TITLE ABBREVIATIONS CEC: Chairman of the executive committee CEO: Chief executive officer CES: Chief executive of a subsidiary CFO: Chief financial officer CIO: Chief investment officer COB: Chairman of the board CON: Controller COS: Chairman of a subsidiary COO: Chief operating officer DIR: Director DM: District manager EVP: Executive vice president EXE: Executive editor FCB: Former chairman of the board GC: General counsel GM: General manager GVP: Group vice president MGR: Manager MDI: Managing director P: President PS: President of a subsidiary RCO: Retired chairman of the board SEC: Secretary SRF: Senior fellow SRP: Senior programmer SV: Senior vice president TRE: Treasurer VCH: Vice chairman VP: Vice president VPF: Vice president of finance OTHER TOP PAID EXECUTIVES
HIGHEST-PAID EXECUTIVE VICE PRESIDENTS
1989 Total Name Title Company Compensation 1 Gary Wilson EVP, CFO Walt Disney Co. 49,488,410 2 Thomas P. Pollock EVP MCA 6,344,327 3 Thomas Wertheimer EVP MCA 4,448,778 4 Christopher Gibbs EVP, COO J.M. Peters Co. 2,923,685 5 Douglas Mahon EVP Seagate Technology 2,738,514 6 Sandy Saemann EVP, SEC L.A. Gear 2,145,843 7 James V. O’Donnell EVP, COO The Gap 2,096,867 8 Elliot Horowitz EVP, CFO L.A. Gear 2,059,075 9 Dean O. Morton EVP, COO Hewlett-Packard 1,868,525 10 Claude Brinegar EVP Unocal 1,663,415
HIGHEST-PAID SENIOR VICE PRESIDENTS
1989 Total Name Title Company Compensation 1 Joe Shapiro SVP, GC Walt Disney Company 2,366,472 2 Guy Nafilyan SVP, CES Kaufman and Broad Home 2,333,067 3 Albert Eisenstat SVP, SEC Apple Computer 2,325,317 4 R. Chad Dreier SVP, CFO Kaufman & Broad Home 1,571,170 5 Donald Waite SVP, CFO Seagate Technology 1,142,039 6 John B. Campbell SVP Northrop 1,110,236 7 Paul Schwartz SVP Maxxam Inc. 1,097,600 8 John R. Luongo SVP Oracle Systems 1,031,139 9 John Imle SVP Unocal 951,087 10 Lawrence Hootnick SVP Intel 938,119
HIGHEST-PAID CHIEF FINANCIAL OFFICERS
Name Title Company 1 Gary Wilson EVP, CFO Walt Disney Co. 2 Robert L. Green COB, CFO Community Psychiatric Centers 3 Elliot Horowitz EVP, CFO L.A. Gear 4 R. Chad Dreier SVP, CFO Kaufman & Broad Home 5 Frank N. Newman VCH, CFO BankAmerica 6 Martin Gerstel COB, CFO Alza Corp. 7 Donald Waite SVP, CFO Seagate Technology 8 Ronald J. Arnault EVP, CFO Atlantic Richfield 9 Norman J. Metcalfe EVP, CFO Broad Inc. 10 Daniel Hofmann VP, CFO Whittaker Corp.
1989 Total Compensation 1 49,488,410 2 4,392,811 3 2,059,075 4 1,571,170 5 1,323,775 6 1,163,228 7 1,142,039 8 1,006,352 9 954,181 10 946,111
CALIFORNIA’S HIGHEST-PAID EXECUTIVES
NAME TITLE COMPANY 1 Frank Wells P, COO, Walt Disney Co. 2 Gary Wilson EVP, CFO Walt Disney Co. 3 Michael Eisner CEO, COB Walt Disney Co. 4 Richard Nunis PS, DIR Walt Disney Co. 5 Millard S. Drexler P, COS The Gap 6 Robert R. Dockson (1) RCO Calfed 7 Sidney Jay Sheinberg P, COO MCA 8 Robert W. Bruce III P Fund American Cos. 9 Thomas P. Pollock EVP MCA 10 John Sculley CEC P, CEO Apple Computer 11 Edward M. Esber COB, CEO Ashton-Tate 12 Charles Hurwitz COB, CEO Maxxam 13 Thomas Wertheimer EVP MCA 14 Robert L. Green COB, CFO Community Psychiatric Centers 15 John A. Young P CEO, VCH Hewlett-Packard 16 Eli Broad COB, CEO Broad 17 William Leone P Maxxam 18 Delbert Yocam SVP, PS Apple Computer 19 Eugene R. White VCH Amdahl 20 Bruce Karatz P CEO Kaufman & Broad Home 21 James R. Harvey COB, CEO Transamerica 22 Christopher Gibbs EVP COO J.M. Peters Co. 23 James W. Conte P, CEO Community Psychiatric Centers 24 Leslie McCraw VCH, CEO Fluor 25 David Mitchell P, COO Seagate Technology 26 William R. Hoover P Computer Sciences 27 Douglas Mahon EVP Seagate Technology 28 Andrew Grove P, CEO Intel 29 Armand Hammer (2) COB, CEO Occidental Petroleum 30 John R. Torell III FCB Calfed 31 Richard Stegemeier COB, P, CEO Unocal 32 Jeffrey C. Barbakow COB, P, CEO MGM/UA Commun. 33 Joe Shapiro SVP, GC Walt Disney Company 34 Ronald Foell P Standard Pacific 35 Guy Nafilyan SVP, CES Kaufman & Broad Home 36 Albert Eisenstat SVP, SEC Apple Computer 37 Robert Greenberg COB, P L.A. Gear 38 Richard K. Eamer COB, CEO National Medical Enterprises 39 Lodwrick M. Cook COB, CEO Atlantic Richfield 40 Ray R. Irani (2) P, COO Occidental Petroleum 41 Michael Eizenberg PS AIFS Inc. 42 Hans A. Wolf VCH Syntex 43 Sandy Saemann EVP, SEC L.A. Gear 44 Michael Spindler SVP, PS Apple Computer 45 James V. O’Donnell EVP, COO The Gap 46 Richard J. Flamson III COB Security Pacific 47 Elliot Horowitz EVP, CFO L.A. Gear 48 C. R. Weaver COB, CEO Clorox 49 Alvin Rush VP MCA 50 A. W. Clausen COB, CEO BankAmerica 51 Albert Bowers COB, CEO Syntex 52 Michael L. Tenzer P, CEO Leisure Technology 53 Charles R. Schwab CEO Charles Schwab Corp. 54 Robert I. Weingarten COB, CEO First Capital Holdings 55 Dean O. Morton EVP, COO Hewlett-Packard 56 Arthur Svendsen CEO Standard Pacific 57 Alan Shugart COB, CEO Seagate Technology 58 Vincent Kontny P Fluor Corp 59 Jean Louis Gassee SVP, PS Apple Computer 60 John C. Lewis COB, CEO Amdahl 61 Fred Carr P, COB First Executive 62 Robert E. Wycoff P, COO Atlantic Richfield 63 Aaron Spelling COB, CEO Aaron Spelling Productions 64 Stanley R. Zax COB, P Zenith National Insurance Co 65 Donald G. Fisher CEO THE GAP INC. 66 Lawrence J. Ellison P, CEO Oracle Systems 67 Erwin Cheldin P, CEO, COB Unico American 68 Claude Brinegar EVP Unocal 69 Charles D. Miller COB, CEO Avery International 70 William B. Patton P, CEO MAI Basic Four 71 Leonard Cohen P, COO National Medical Enterprises 72 Richard H. Deihl COB CEO H.F. Ahmanson 73 Robert F. Erburu (3) COB, CEO Times Mirror 74 Carl E. Reichardt COB Wells Fargo 75 James C. Morgan COB, CEO Applied Materials 76 John P. Munson P Syntex 77 R. Chad Dreier SVP, CFO Kaufman & Broad Home 78 Arthur E. Van Leuven EVP Transamerica 79 Leslie L. Gonda CEO International Lease Finance 80 Steven F. Hazy Udvar P International Lease Finance 81 Louis L. Gonda EVP International Lease Finance 82 Joseph J. Pinola COB, CEO First Interstate Bancorp 83 Roger B. Menard PS Kaufman & Broad Home 84 Louis Rosso (4) P, CEO, COB Beckman Instruments 85 Phillip R. Boyce COB, CEO Pacific Western Bancshares 86 Douglas S. Cramer VCH Aaron Spelling Productions 87 John L. Doyle EVP Hewlett-Packard 88 William E. Terry EVP, DIR Hewlett-Packard 89 William R. Anderson P Applied Magnetics 90 Donald R. Beall COB, CEO Rockwell International 91 Duke Vincent PS Aaron Spelling Productions 92 John Crean COB, CEO Fleetwood Enterprises 93 Alvin E. Nashman VP Computer Sciences 94 David Tappan Jr. COB Fluor 95 Christopher Moore VPF Columbia Savings & Loan 96 Richard M. Rosenberg VCH BankAmerica 97 Richard Alberding EVP Hewlett-Packard 98 Henry Gluck COB, CEO Caesars World 99 Frank N. Newman VCH, CFO BankAmerica 100 John W. Amerman BOB, CEO Mattel
CALIFORNIA’S HIGHEST-PAID EXECUTIVES (continued)
1989 Total Salary Stock Stock Other Comp. & Bonus Options Awards Comp. 1 50,945,780 4,819,680 46,126,100 None None 2 49,488,410 2,000,000 47,488,410 None None 3 9,589,360 9,589,360 None None None 4 9,013,914 800,000 8,213,914 None None 5 8,453,148 1,745,981 526,608 6,180,559 None 6 8,400,000 200,000 None None 8,200,000 7 7,930,502 729,000 None 7,175,788 25,714 8 7,927,225 5,485,000 None 2,442,225 None 9 6,344,327 627,425 None 5,693,438 23,464 10 4,588,675 2,251,175 2,337,500 None None 11 4,451,734 484,956 3,966,778 None None 12 4,474,463 3,977,138 497,325 None None 13 4,448,778 626,150 None 3,796,914 25,714 14 4,392,811 525,000 3,846,824 None 20,987 15 4,110,731 1,584,699 1,440,250 1,017,208 68,574 16 3,681,450 811,750 2,844,450 None 25,250 17 3,280,875 870,250 2,410,625 None None 18 3,151,304 785,679 2,365,625 None None 19 3,036,366 474,284 2,558,333 None 3,749 20 3,007,012 3,002,012 None None 5,000 21 2,991,719 1,385,650 1,507,406 56,163 42,500 22 2,923,685 2,923,685 None None None 23 2,884,788 675,000 2,182,944 None 26,844 24 2,883,311 1,783,192 1,063,685 None 36,434 25 2,807,526 874,193 1,933,333 None None 26 2,797,642 724,671 2,069,245 None 3,726 27 2,738,514 800,754 1,937,760 None None 28 2,650,215 723,003 1,915,312 11,900 None 29 2,554,444 2,334,332 17,500 183,519 19,093 30 2,529,870 329,870 None None 2,200,000 31 2,454,752 1,064,769 None 1,386,802 3,181 32 2,413,938 2,413,938 None None None 33 2,366,472 775,000 1,591,472 None None 34 2,358,355 2,358,355 None None None 35 2,333,067 994,692 1,335,875 None 2,500 36 2,325,317 734,317 1,591,000 None None 37 2,319,878 2,311,886 None None 7,992 38 2,295,092 1,673,902 None None 621,190 39 2,271,977 1,930,346 253,538 None 88,093 40 2,655,262 1,920,028 216,062 30,021 489,152 41 2,256,276 1,861,026 None 395,250 None 42 2,208,534 594,650 1,613,884 None None 43 2,145,843 2,142,740 None None 3,103 44 2,097,166 712,666 1,384,500 None None 45 2,096,867 843,782 771,250 481,835 None 46 2,070,900 1,514,300 541,500 None 15,100 47 2,059,075 2,054,626 None None 4,449 48 2,037,763 1,309,900 485,722 242,141 None 49 2,016,961 569,200 None 1,422,047 25,714 50 1,998,651 1,737,500 None 210,300 50,851 51 1,983,097 1,157,699 825,398 None None 52 1,949,335 669,197 1,280,138 None None 53 1,946,502 1,942,688 None None 3,814 54 1,900,000 1,900,000 None None None 55 1,868,525 1,002,637 None 777,671 88,217 56 1,851,585 1,851,585 None None None 57 1,833,757 762,924 1,070,833 None None 58 1,832,682 1,355,155 440,960 None 36,567 59 1,816,086 811,128 1,004,958 None None 60 1,805,580 865,346 935,014 None 5,220 61 1,804,734 1,804,734 None None None 62 1,782,353 1,248,146 467,382 None 66,825 63 1,765,769 1,765,769 None None None 64 1,753,898 1,750,000 None None 3,898 65 1,745,981 1,745,981 None None None 66 1,734,375 1,734,375 None None None 67 1,710,864 742,851 968,013 None None 68 1,663,415 652,107 None 1,008,762 2,546 69 1,651,609 1,004,332 611,681 None 35,596 70 1,636,135 334,446 None None 1,301,689 71 1,629,776 1,232,691 None None 397,085 72 1,626,902 1,189,453 437,449 None None 73 1,622,176 1,146,474 None 475,702 None 74 1,606,091 1,522,500 None None 83,591 75 1,592,717 828,841 763,876 None None 76 1,579,601 380,883 1,071,118 None 127,600 77 1,571,170 842,575 726,095 None 2,500 78 1,542,997 751,775 758,597 26,905 5,720 79 1,525,329 1,525,329 None None None 80 1,525,329 1,525,329 None None None 81 1,525,329 1,525,329 None None None 82 1,507,661 1,069,040 121,500 275,174 41,947 83 1,504,111 973,486 530,625 None None 84 1,489,177 397,924 366,752 None 724,501 85 1,460,520 1,083,841 376,679 None None 86 1,430,385 1,430,385 None None None 87 1,402,492 626,875 220,995 547,080 7,542 88 1,399,264 660,136 405,840 333,288 None 89 1,395,994 206,146 756,723 433,125 None 90 1,393,571 1,361,471 None None 32,100 91 1,380,000 1,380,000 None None None 92 1,377,714 1,219,598 None None 158,116 93 1,359,390 418,482 937,200 None 3,708 94 1,355,985 1,286,737 None None 69,248 95 1,346,741 1,346,741 None None None 96 1,345,246 1,250,000 None 68,967 26,279 97 1,329,431 669,022 112,215 540,652 7,542 98 1,326,105 1,326,105 None None None 99 1,323,775 845,833 427,839 34,483 15,620 100 1,323,059 1,178,560 None None 144,499
METHODOLOGY:
The charts were compiled by researcher Keating Holland of The Times’ bureau in Washington, D.C.
Information was derived from proxy statements and annual reports of approximately 500 publicly held California companies with revenues exceeding $20 million. The compensation of more than 2,300 executives was examined. In cases where benefits or stock gains were reported over periods exceeding one year, the number shown on the chart is an annual average.
In cases where 1989-90 proxy statements were not yet available, information is from the previous year’s proxy.
FOOTNOTES:
(1) Robert R. Dockson--$8.2 million represents a lump-sum retirement benefit; $200,000 is a consulting fee earned in 1989.
(2) Armand Hammer and Ray R. Irani--Stock awards calculated at a per share price of $29.50, which is equivalent to the average of the high and low share prices during the period.
(3) Robert F. Erburu--Stock award figure represents the value of restricted shares on which restrictions have lapsed. Marked value estimated at $37.31, which is the average price during the period minus the $1 purchase price.
(4) Louis Rosso--Includes appreciation of grants paid in 1989 under SmithKline Beckman Inc.’s long-term incentive compensation plan. Beckman Instruments was spun off from SmithKline Beckman in July, 1989.
