Top Corporate Wages Suddenly Catch Up in Orange County

For more years than most local executives would like to recall, the compensation pulled down by top managers of publicly traded companies in Orange County has lagged well behind that of their counterparts in Los Angeles and San Francisco.

The county still trails in compensation comparisons--the means by which the corporate elite keep score--but the gap seems to be closing. Rapidly.

Thanks to a widespread policy in recent years of linking executive compensation with corporate rather than stock market performance, the pay pulled down by hundreds of local executives moved up appreciably in 1989, a review of company proxy statements reveals.

It was, in fact, the year of the millionaire manager in Orange County, with nearly 10% of the 167 executives statewide whose total pay topped $1 million running--or helping to run--county-based companies.

Compensation for the 15 local men on that list ranged from $4.39 million to $1.07 million in salary, bonuses, stock option profits, stock awards and other types of compensation--including the value of company cars and company-paid life insurance.

And it was 15 men on the list. While the $325,741 compensation Kathryn A. Braun drew as a senior vice president at Western Digital Corp. in Irvine made her the sixth-best-paid woman executive in the state, it was still good enough for just a 74th-place ranking in Orange County. Just two other women surfaced in the survey in Orange County: April Morris, vice president of finance at Standard Pacific, a Newport Beach building firm, with $284,175, and Debbie Miede, senior vice president at Downey Savings & Loan Assn., also in Newport Beach, with $140,892.

The most highly compensated executive of a local public company for 1989 was Robert L. Green, former chairman and chief financial officer of Community Psychiatric Centers. His total package, worth nearly $4.4 million, included just $525,000 in cash and cash bonuses and $3.8 million from stock options. He left the company last year, when it divested Vivra Inc.

The typical Orange County executive, according to the study, made about $313,000 last year--just 70% of the statewide average of $447,959. The halfway point on the list was $195,219, or 17.5% less than the statewide median of $236,838.

The 100 most highly compensated county executives averaged $659,021.

The Times counted the five most highly compensated officers at publicly held corporations, the only pay packages the companies are required to report to the Securities and Exchange Commission. About 80 local companies--those with annual revenue of $20 million or more--were included.

That means that such county luminaries as Irvine Co. owner Donald L. Bren and developers Donald Koll, William Lyon and George Argyros--all members of the Forbes 400 list of America’s wealthiest individuals--don’t show up. Their companies and their pay plans are private.

In all, the pay packages of more than 325 county executives were included in the survey. And while most didn’t make the magic million mark--equivalent of $19,230.77 a week--as a whole they did a lot better overall than in years past.

Three dozen local executives received at least $500,000 in total compensation--twice as many as in fiscal 1988. And 117 Orange County executives received at least $250,000, compared to just 62 in fiscal 1987. Just 28 local managers drew less than $100,000.

And at the top of the list, the county’s total of 15 millionaire managers for 1989 contrasts with just three in 1988, six in 1987 and none in 1986.

Although most of the top-paid managers made the list because of performance bonuses--the biggest, at $2.5 million cash, went to Christopher Gibbs, president of J.M. Peters Co.--two of the county’s million-dollar compensation packages got that big because they were swelled by severance pay.

Kenneth G. Riedlinger, a former executive vice president of Irvine-based National Education Corp., received $1.07 million in combined salary and severance pay in 1989. The company lost $29.3 million, largely because of problems at the Applied Learning unit that Riedlinger headed.

The $1.6 million received by William Patton--longtime president of MAI Basic Four, an Irvine computer maker--included just $334,446 in salary. Patton, who left the company just a few months before the end of the 1989 fiscal year, also got $996,000 in severance pay and $300,000 from a consulting contract.

Severance pay aside, management pay in the county was up considerably last year. The soaring pay base reflects a significant change in the makeup of the local business community, said Mark R. Lipis, a principal with the Wyatt Co.’s Southern California compensation consulting group.

In the last few years, he said, several major corporations have established regional offices within the county, with pay practices that have forced many local entrepreneurial firms to boost executive compensation to attract and, more importantly, retain good people.

Additionally, he said, the high cost of housing in the county is forcing local companies to boost pay, for both managers and hourly workers.

Still, the executives who make the list of the most highly compensated generally do it with bonuses and stock profits, not base salary.

Thus, even among the county’s millionaire managers, performance bonuses and profits from exercising stock options accounted for most of the pay. Straight salaries hovered in the range of $400,000 to $600,000.

There was nothing really unusual about the business climate in 1989 to explain the surge in executive pay. A few companies that had been hurting in past years completed major recoveries, such as Irvine-based Fluor Corp.

But a few former high-fliers--such as Carl Karcher Enterprises, National Education Corp. and Comprehensive Care Corp.--had their wings clipped. Troubled CompCare even relocated its headquarters to St. Louis at the end of last year.

The stock market did well, but because most of the county’s public companies are small to middle-size entrepreneurial outfits that are thinly traded in the over-the-counter markets, there weren’t enough spectacular market gains to account for the general increase in everyone’s compensation.

In fact, the reliance in years past on stock options--the reason that Green, Community Psychiatric’s former chairman, and James L. Conte, its president, have perennially placed among the top five Orange County executives--seems to be waning.

Just 40 of the county’s 100 best-paid managers last year included stock-option profits in their compensation. And just 16 of those who used stock options got a significant share of their pay--a third or more--from them.

“After the market crash (on Oct. 19, 1987), a lot of new compensation plans were done,” said Lipis, the Wyatt Co. compensation specialist. “And they were multiyear cash compensation plans rather than the old standby stock option plans. Executives had learned not to depend so heavily on the stock market. And now some of these cash compensation plans are starting to pay off.”

Still, there is no reason to think that county companies are going to be boosting pay through the roof over the next few years, cautions Lawrence Wangler, managing partner of the Newport Beach office of TPF&C;, the compensation consulting arm of Towers Perrin, an international benefits consulting firm.

“I don’t think we’re seeing the beginning of a new trend of highly paid CEOs,” he said. “Business in the county was pretty healthy last year, and that made both bonuses and the value of exercising stock options go up, which increased the total aggregate compensation of the management group,” Wangler said.

“But the business base in the county is mainly small- and mid-size companies, with a lot of really volatile high-technology and construction companies, and their compensation packages reflect that volatility by bouncing around a lot.”

Most salaries, bonuses and other forms of compensation went up last year, but a few local executives saw their pay plummet.

While a company’s poor financial showing was at the root of most pay plunges, the salaries of the co-founders of Downey Savings & Loan in Newport Beach dropped for reasons that had nothing to do with the performance of one of the nation’s best-managed thrifts.

In 1988, Downey awarded Maurice L. McAlister, Downey’s president, and Gerald H. McQuarrie, its chief executive, one-time bonuses of $750,000 and $500,000, respectively. That boosted McAlister into third place on last year’s list of the county’s best-paid executives, with total 1988 compensation of $1.1 million. McQuarrie ranked seventh at $821,000. The bonuses were the first either man had received since the S&L; opened in 1957.

There was no bonus in 1989, but the board voted to increase base pay for the two founders by $100,000 each. McAlister, however, turned down the raise, saying the $382,502 he’d been pulling down was plenty. McQuarrie, who accepted the raise, drew $415,955 in 1989.

At Carl Karcher Enterprises, founder and chairman Carl Karcher’s sizeable pay cut was tied to performance. Profits for the fast-food chain plunged to $4.7 million last year, from $23 million in 1988, and Karcher’s cash compensation tumbled to $398,169, from $628,732.

The same thing happened at AST Research Inc., an Irvine microcomputer manufacturer that was hurt last year by the downturn in the computer market and by internal problems in switching product lines.

AST co-founders Safi Qureshey and Thomas Yuen each drew salaries of $412,800 in 1987, when the company posed a $15-million profit. Their draw was cut to $335,000 apiece last year, when the company lost $7 million. So far this year, AST is back on top, with booming sales of its new computer line.

Soaring earnings had the opposite result at Fluor Corp., where the top five executives all received more than $1 million last year.

The giant engineering and construction company posted a $108-million profit for 1989. But it lost $633.2 million in 1985 and $60.4 million in 1986 and earned just $83 million the next two years.

So as a reward for engineering the turnaround, Leslie McCraw--promoted from president in 1988 to vice chairman and chief executive last year--saw his compensation package balloon to $2.8 million--including a $1 million bonus--from $507,000 in 1988.

Fluor chairman David Tappan’s compensation was boosted to $1.3 million last year, from $898,000 in fiscal 1988.

Chuck Bradley, Fluor’s vice president for human relations, said the company’s executive compensation philosophy is to reward performance. But while lower-level managers’ bonuses tend to be in cash and based on annual corporate or divisional improvements, top executives’ rewards are tied to long-term performance and improvements in stock value.

“We don’t want to reward our top executives unless there is value there for the shareholders, as well,” he said.

The million-dollar pay packages of the five Fluor executives last year, Bradley said, “is the result of a long-term incentive plan we put into effect in early 1987.”

Fluor is one of a dozen companies whose top executives traditionally wind up at the top of the best-paid list in the county each year.

In addition to Fluor, the perennial chart-toppers in the county include Community Psychiatric Centers; J.M. Peters Co. and Standard Pacific, both publicly held home builders; Bergen Brunswig Corp., a distributor of pharmaceuticals and, through a subsidiary, prerecorded videocassettes; FHP International, a major health maintenance organization; Carl Karcher Enterprises, operator of the Carl’s Jr. chain of fast food restaurants; and Western Digital Corp., a computer products manufacturer.

As of 1989, two new players were added to the list, as Allergan Inc. and Beckman Instruments were spun off from SmithKline Beckman Inc. last year and became independent, publicly held companies.

Because of the spinoff, the top five executives at Beckman Instruments, the Fullerton-based precision instrument maker, received large payouts from SmithKline Beckman’s long-term incentive compensation plan.

William May, Beckman’s chief counsel, said that including the benefits paid by SmithKline Beckman to its officers in a listing of annual compensation paid to those same Beckman Instruments executives presents an “inaccurate and unfair” picture of Beckman Instruments’ executive wage scale.

He said the payout was a one-time payment that would not have been totally realized last year had SmithKline Beckman not divested the subsidiary.

In addition, the funds came from SmithKline Beckman, not the newly independent Beckman Instruments, he said.

Beckman Chairman Louis Rosso said Beckman’s directors went through a “very disciplined review of pay raises” in reaction to the spinoff. Among the factors considered, he said, are management performance and the relative size of the company in comparison to others in the industry.

Such reviews are typical, compensation specialists say.

The compensation market is propelled by a “me-too” attitude, said Lipis, the Wyatt Co. consultant. “Executives read their competitors’ proxy statements and see what kind of packages their counterparts are getting, and they say, ‘Me too.’ ”

BIGGEST BONUS

J.M. Peters Co. President Christopher Gibbs received the largest cash bonus among local executives in 1989--$2.5 million. The county’s second bonus baby, Standard Pacific President Ronald Foell, got $2.1 million. Both men head home building companies.

WINNING WAGE

David Tappan Jr., chairman of the Fluor Corp., received the largest local salary in 1989--$1.2 million. Nobody else even topped $800,000. While he got no bonus, the four other top Fluor officials received $3.3 million in incentive payments.

UPLIFTING EXERCISE

Knowing how--and when--to play the stock market has paid really big dividends for Robert L. Green, former chairman of Community Psychiatric Centers. Exercising options acquired at an average cost of $22 a share when the stock hit $35 last year boosted his compensation by $3 million.

HIGHEST PAID WOMAN

Kathryn A. Braun turned down a waitress job to enter a county computer maker’s management training program 15 years ago. Now head of Western Digital Corp.’s largest division, she was the county’s best-paid woman executive with $325,741 in compensation last year.

BIG DEAL

James M. Peters, founder, namesake and chairman of J.M. Peters Co., was paid only $416,500 in 1989--about 15% of what the company’s president got. But don’t feel sorry for him. Peters received $11.2 million from San Jacinto Savings under an “earnout agreement,” for the sale of the company to the thrift four years ago.

COUNTRY CLUB SET

Executive perks take many forms. Consider B. Lee. Karns, former chairman of Comprehensive Care Corp. Last year, he exercised an option to buy his company-provided country club membership for $1,000. The company estimated the market value of the membership at $130,000.

FORGIVING FIRM

Many companies have executive loan programs. Varco international figured out a way to use its as a bonus of sorts. President George Boyadjieff obtained an interest-free loan of $402,662 in 1987. He still owed the entire amount last year, when the company forgave $150,000 of the debt.

ORANGE COUNTY’S HIGHEST PAID EXECUTIVES

RANK NAME TITLE COMPANY 1 Robert L. Green COB/CFO Community Psychiatric Centers 2 Christopher Gibbs EVP/COO J.M.Peters 3 James W. Conte P/CEO Community Psychiatric Centers 4 Leslie McCraw VCH/CEO Fluor 5 Ronald Foell P Standard Pacific 6 Arthur Svendsen CEO Standard Pacific 7 Vincent Kontny P Fluor 8 William Patton P/CEO MAI Patton Basic Four 9 Louis Rosso (1) P/CEO/COB Beckman Instruments 10 David Tappan Jr. COB Fluor 11 Emil Martini Jr. CEO/COB Bergen Brunswig 12 Robert Gumbiner CEO/COB FHP International 13 Hugh Coble VP Fluor 14 Gerald Glenn VP Fluor 15 Kenneth Riedlinger (2) EVP National Education 16 Lee B. Karns COB/P Comprehensive Care 17 Wareham Jack (2) VP Beckman Instruments 18 Johnson Roger COB/P/CEO Western Digital 19 Terry Hartshorn P/CEO Pacificare Health Systems 20 Robert Martini P Bergen Brunswig 21 Albert Nichols P/CEO/COB Nichols Institute 22 Wm. P. Foley II P/CEO Fidelity National Financial 23 Alan Hoops EVP/COO Pacificare Health Systems 24 Gavin Herbert COB/CEO Allergan 25 Richard Ulmer SVP/PS Allergan 26 Wayne Patterson PS/CEO/COO Nichols Institute 27 Richard Lipeles SVP/PS Pacificare Health Systems 28 Milan Panic COB/P/CEO ICN Pharmaceuticals 29 J.W. Cwiertnia P/COO National Education 30 Peter Churm COB Furon 31 Karl Kreutzer PS J.M. Peters 32 Geroger Kilmain (1) VPF/CFO Beckman Instruments 33 Albert Ziegler (1) VP Beckman Instruments 34 Dwight Steffesen EVP Bergen Brunswig 35 Arthur Torrellas (1) VP Beckman Instruments 36 Carl Karcher COB/CEO Carl Karcher Enterprises 37 Richard Bradshaw VP J.M. Peters 38 Norman Achen TRE/P/CEO Nichols Institute 39 John Warner COB/CEO Quiksilver 40 Norman Abramson P/COO Clothestime 41 James Carroll P/CEO/DIR Wynn’s International 42 George Reinhardt Jr VPF/CFO Bergen Brunswig 43 Michael DeAngelo COB/CEO Clothestime 44 John Ortega II VCH Clothestime 45 Raymond DeAngelo VCH Clothestime 46 Wesctott Price III P/VCH FHP Iinternational 47 James Peters COB/P/CEO J.M. Peters 48 Gerlad McQuarrie CEO/DIR Downey S&L; 49 Frank Fullerton VP J.M. Peters 50 James Nicol EVP Comprehensive Care Corp 51 Kenneth Campbell VP/GM Archive 52 George Boyadjieff P/COO/DIR Varco International 53 Frank Taylor Jr PS/COO Nichols Institute 54 Jeffrey Sherman P/CEO Armor All Products 55 Michael Hagan P Furon 56 Patrick Paddon P/CEO/ Amplicon 57 Maurice McAlister P/DIR Downey S&L; 58 John Mackey SVP Western Digital 59 Ronald White COB/CEO/P Centennial Group 60 B.J. Rone VPF/CFO SEC Archive 61 William Shepherd P/COO Allergan 62 Abel Vigil SVP/PS Fidelity National Fin. 63 Ronald Kenwisher VP Archive 64 George Kadonada P/CEO US Facilities 65 Keith Stewart P/CEO COB Gradco Systems 66 Richard Conte EVP Community Psychiatric Centers 67 Philip Frey Jr P/COB/CEO Microsemi 68 Thomas Yeun COO AST Research 69 Safi Qureshey CEO/P AST Research 70 Landon Exley P/ DIR Pacesetter Homes 71 William Bridford COB Bridgford Food 72 Allan Bridgford P/DIR Bridgford Food 73 Hugh Bridgford VP/DIR Bridgford Food 74 Kathryn Braun SVP Western Digital 75 Fred Cox COB/P/CEO Emulex 76 Robert Schulze EVP/TRE Bridgford Food 77 Wallace Laub EVP National Education 78 Stephen Prough P/COO/DIR Westcorp 79 Ronald Tapper EVP National Education 80 Ernest Rady COB/CEO Westcorp 81 Robert Kaselmann EVP Comprehensive Care 82 Robert McKnight P/DIR Quiksilver 83 A.J. Moyer VPF/CFO Western Digital 84 David H. Bright COB/CEO National Education 85 Donald Karcher P/COO/DIR Carl Karcher Ent. 86 Thomas Hammond P/COB Hammond Co. 87 Howard Lewis COB/P Archive 88 Louis Horwitz P/COB Datum 89 Walter Sterling P/CEO Comarco 90 Gary Hartung PS Centennial Group 91 Micharl Leff VP Clothestime 92 William Miller VP Archive 93 Adam Jerney EVP ICN Pharmaceuticals and 94 Edgar Brower DIR/P/CEO Pacific Scientific 95 Loren B. Shook EVP Community Psychiatic Centers 96 Monty Houdeshell VP/CFO/SEC Furon 97 D.P. Kennedy P/DIR First American Fin. 98 Wayne Lowell VPF CFO TRE Pacificare Health Systems 99 April Morris VPF/TRE/SEC Standard Pacific 100 William Durham P For Better Living

ORANGE COUNTY’S HIGHEST PAID EXECUTIVES (continued)

1989 Total Salary Stock Stock Other RANK Comp. & Bonus Options Awards Comp. 1 4,392,811 525,000 3,846,824 None 20,987 2 2,923,685 2,923,685 None None None 3 2,884,788 675,000 2,182,944 None 26,844 4 2,883,311 1,783,192 1,063,685 None 36,434 5 2,358,355 2,358,355 None None None 6 1,851,585 1,851,585 None None None 7 1,832,682 1,355,155 440,960 None 36,567 8 1,636,135 334,446 None None 397,085 9 1,489,177 397,924 366,752 None 724,501 10 1,355,985 1,286,737 None None 69,248 11 1,321,098 1,096,860 224,238 None None 12 1,262,598 1,212,000 None 20,598 30,000 13 1,256,535 1,228,595 None None 27,940 14 1,216,284 1,192,854 None None 23,430 15 1,076,327 1,076,327 None None None 16 976,987 507,292 None None 469,695 17 971,632 361,102 198,388 None 412,143 18 941,934 467,581 474,353 None None 19 916,465 624,820 None 288,000 3,645 20 841,930 798,913 43,017 None None 21 835,325 825,325 None None None 22 817,705 817,705 None None None 23 749,344 457,699 None 288,000 3,645 24 739,092 402,108 335,134 None 1,850 25 693,832 244,441 449,391 None None 26 666,299 304,199 362,100 None None 27 656,496 326,851 None 326,000 3,645 28 645,440 574,050 None None 71,390 29 632,889 247,654 324,453 54,962 5,820 30 590,476 581,149 None None 9,327 31 571,451 571,451 None None None 32 564,111 203,128 138,064 None 222,919 33 563,049 269,875 42,567 None 255,603 34 554,422 494,333 60,089 None None 35 542,564 206,820 81,477 None 250,268 36 503,169 398,169 None None 105,000 37 477,393 477,393 None None None 38 475,538 293,338 182,200 None None 39 467,478 467,478 None None None 40 463,659 369,148 94,511 None None 41 448,500 448,500 None None None 42 443,750 443,750 None None None 43 430,152 430,152 None None None 44 430,038 430,038 None None None 45 429,948 429,948 None None None 46 420,412 383,000 None 7,412 30,000 47 416,500 416,500 None None None 48 415,955 415,955 None None None 49 408,364 408,364 None None None 50 401,712 383,369 None None 18,343 51 401,110 195,450 33,160 172,500 None 52 401,000 251,000 None None 150,000 53 400,056 187,356 212,700 None None 54 395,331 363,250 None None 32,081 55 390,109 383,431 None None 6,678 56 384,984 384,984 None None None 57 382,502 382,502 None None None 58 375,940 238,673 137,267 None None 59 374,000 337,500 None None 36,500 60 369,820 251,500 3,320 115,000 None 61 369,552 299,307 None 68,395 1,850 62 365,553 365,553 None None None 63 359,942 175,250 12,192 172,500 None 64 357,500 357,500 None None None 65 352,500 352,500 None None None 66 350,694 200,000 111,495 None 39,199 67 350,626 321,090 None 24,536 None 68 341,300 335,000 None None 6,300 69 340,000 335,000 None None 5,000 70 336,000 334,000 None None 2,000 71 330,650 330,650 None None None 72 330,650 330,650 None None None 73 330,650 330,650 None None None 74 325,741 255,365 70,376 None None 75 323,926 323,926 None None None 76 322,700 322,700 None None None 77 319,522 128,500 149,309 35,894 5,820 78 318,975 318,975 None None None 79 314,749 190,997 59,544 36,484 27,724 80 314,480 314,480 None None None 81 312,625 286,069 None None 26,566 82 311,239 311,239 None None None 83 310,254 252,754 57,500 None None 84 305,533 195,462 5,654 104,417 None 85 302,700 282,491 20,209 None None 86 300,000 300,000 None None None 87 299,593 299,593 None None None 88 297,850 249,000 None 44,375 4,475 89 297,182 297,182 None None None 90 296,814 296,814 None None None 91 296,333 293,526 2,807 None None 92 295,479 180,479 None 115,000 None 93 294,637 283,823 None None 10,814 94 293,372 293,372 None None None 95 292,716 200,000 56,317 None 36,399 96 292,246 292,246 None None None 97 290,920 290,920 None None None 98 289,084 285,439 None None None 99 284,175 262,300 21,875 None None 100 284,147 281,754 None None 2,393

METHODOLOGY:

The charts were largely compiled by Los Angeles Times researcher Keating Holland in Washington.

Information was derived from proxy statements and annual reports of approximately 500 California companies, including 75 in Orange County, with revenues exceeding $20 million. The compensation of more than 2,300 executives, including more than 325 in Orange County, was examined. Companies in bankruptcy or under control of regulators were not included.

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) Other compensation 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.

(2) Includes compensation and severance payment.

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