IBM, Avon to Reduce Pay for Top Brass : Compensation: Both firms move to tie salary packages to company performance.

In what could be among the first corporate responses to mounting public outrage over excessive executive pay packages, two big companies have revealed that they will trim total compensation paid to top officers.

International Business Machines said in its annual report released Monday that Chairman John F. Akers expects his total salary plus bonuses for 1991 to be cut by an estimated 40%, to less than $1.6 million, subject to final board approval.

At the same time, James E. Preston, chairman and chief executive of Avon Products Inc., has frozen his salary and lowered his bonus in exchange for stock options that will more directly tie his pay to the company’s performance, Avon said Monday.

At IBM, four other top managers, members of the firm’s management committee, will receive cuts estimated at about 40% along with their chief. About 60 corporate officers below them will also see their pay shrink by 10% to 20%. The reductions reflect IBM’s dismal results for the year, when the company suffered its first annual loss ever.

Last year, Akers and other management committee members came under heavy criticism from IBM employees. As earnings plunged and employees’ pay was largely frozen, top executives pocketed hefty pay increases of between 33% and 43%, plus sizable restricted stock awards.

At Avon, Preston said no complaints had been heard about his $610,000 annual salary, plus a 65% bonus tied to net income and cash flow targets. But Preston said he had decided last summer to review his salary package because built-in escalations would cause it to total as much as $1.7 million a year in five years’ time, an amount he judged excessive.

As a result, Preston’s salary is now frozen and his bonus has been reduced to 50%. In exchange, Preston has received the right to purchase options for 50,000 Avon shares at about $40.25 per share. Avon stock closed at $47.375 per share in New York Stock Exchange trading Monday. Although Preston stands to gain from such an arrangement, given the current stock price, shareholder rights groups prefer stock options as a form of compensation because they more closely tie an executive’s fate to that of shareholders.

Separately, General Motors Chairman Robert C. Stempel indicated Monday that the auto maker was unlikely to slash pay beyond the 50% cut in total compensation to top officers already under way for each of the past two years, through the elimination of stock and cash bonuses. But GM did confirm that its board has ordered a watering down of executive pensions.

The highly unusual actions of IBM and Avon follow hearings on executive compensation in Congress in which some legislators have suggested that pay for top officers should be a fixed percentage of the lowest-paid worker. Moreover, the Securities and Exchange Commission--acting just before the annual meeting season--recently proposed rule changes that will allow shareholders a greater voice concerning compensation.

Not all companies are making concessions, however.

At Champion International, Chief Executive Andrew C. Sigler has chosen to fight. He hired Champion adviser Ira M. Millstein, a prominent New York attorney, to challenge Graef S. Crystal, a compensation expert and author of the recent book “In Search of Excess,” which criticized many executive pay plans as excessive. Crystal devoted several pages in the book to criticism of Sigler’s 1990 pay. Champion, a Stamford, Conn.-based paper products concern, values Sigler’s package at $1.2 million and Crystal values it at $3.5 million.

Millstein wrote several letters to Crystal, criticizing his methodology and his focus on Sigler. Crystal responded that he would devote further attention to the subject in future newsletters that he publishes. Crystal’s intent to make the correspondence public caused Millstein to threaten a lawsuit for copyright infringement--a threat he has subsequently withdrawn. Crystal, meanwhile, denounced Champion’s action as “corporate terrorism.”