A Report Card on Pay : How 100 State CEOs’ Compensation Jibes With Their Firms’ Performance

Price Co. knows a lot about bargains. After all, the San Diego-based retail chain has made its mark by selling name-brand goods at rock-bottom prices. And the company’s shareholders also are getting a good deal.

Price Co.’s performance--based on an analysis of stock price appreciation and dividends paid to shareholders--ranks it among the top third of California’s biggest 100 companies, according to the Los Angeles Times’ annual survey of corporate performance and pay.

At the same time, the study found that the firm’s chief executive, Robert Price, earns less than half the median pay of CEOs of California companies of similar size and in related industries. In fact, his 1991 paycheck of $270,000 made him the lowest-paid executive among the group surveyed.

The Times study is an attempt to offer a broad set of reference points against which to gauge possible relationships between performance and pay.

Measures of pay and performance are imprecise and often controversial. There is no single formula that provides an exact measure of financial performance or how that performance should be directly translated into executive pay. And often top executives are paid to perform duties--such as turning around a loser or revitalizing a management team--that don’t show up right away on the bottom line.

Still, it is possible to provide a picture of whether the pay of top executives generally appears to be in line with their companies’ financial fortunes.

The Times’ performance and pay analysis was conducted by Graef S. Crystal, an executive compensation specialist and professor at UC Berkeley. He examined how California’s biggest public firms performed by examining each company’s stock price appreciation and dividends paid--for both 1991 and the 1985-1991 period. The Times then ranked executives according to their one-year and seven-year performance scores.

The study comes as public pressure about excessive executive compensation has been growing. More and more shareholders and money managers have been demanding that companies tie executive pay directly to a company’s performance. In other words, if the company loses money, the CEO should feel the pain; if the company profits, the top dog should share in the wealth.

The Times survey shows that, when it comes to measuring pay and performance, California companies vary widely. Most companies and their top executives appear to be basically on the same wavelength, though others appear out of sync to varying degrees. And, in many instances, it is difficult to draw hard-and-fast conclusions about whether a CEO earns too much--or too little.

Take Joseph Jacobs, chief executive of Pasadena-based Jacobs Engineering Group. He appears to be rendering his services cheaply. Jacobs Engineering has performed better for its shareholders than the clear majority of similar companies, yet Jacobs’ compensation is far below the industry norm, according to The Times study.

Michael D. Pickett, president and chief executive of Merisel Computer Products, who scores among the top performers in both the one-year and seven-year periods, is also taking home a salary that’s significantly less than his peers. He was paid cash compensation of $518,497, about $300,000 less than the median in his industry group.

Less easy to evaluate is the compensation of Sam Ginn, chairman, president and chief executive of Pacific Telesis Group.

His company’s performance in 1991 ranked it at the bottom half of the 100 firms examined. Pacific Telesis fared better on a long-term basis, ranking near the middle of the 100 companies surveyed for the 1985-1991.

Ginn’s cash compensation--salary and bonus--of $1.84 million last year was more than twice the median salary of California executives at companies of similar size and in similar businesses.

Pacific Telesis says the results are deceiving. Ginn’s pay is about average for executives operating regional telephone companies, said spokesman William Strawn.

Moreover, his total compensation package--which includes long-term incentives--fell about 6.4% in 1991 to reflect Pacific Telesis’ lackluster recent performance. The company’s earnings slipped 1.5% to $1.01 billion in 1991. Total returns to shareholders during the year--including dividends and stock price appreciation--amounted to only 1.9%, which ranked the company as one of the state’s worst performers.

“The company believes very strongly in performance being linked to pay, and we believe his pay reflects that,” Strawn added. “We would dispute that he’s overpaid for his performance.”

Then there is the case of MGM-Pathe Communications Corp.

The performance of MGM-Pathe, the troubled film maker, ranked 96th out of the 100 companies in the survey over both the one-year and seven-year periods. But Chief Executive Alan Ladd earned nearly $4.5 million in 1991, more than seven times the peer-group norm.

The company, which has been the subject of a power struggle between former owner Giancarlo Parretti and banks who lent him money, defends the pay, saying that Ladd is pivotal to keeping the firm operating.

“Under prior management, the company had no credibility in the film community,” said spokesman Craig Parsons. “Ladd is the only chance the company had to attract talent.”

About $1 million of Ladd’s pay was a one-time signing bonus to persuade him to become the beleaguered firm’s chief executive, Parson’s added. “It is really no different than paying for star power in a film.”

The Times performance rankings were based on only one criterion--how companies performed for their shareholders. Firms with the best stock price appreciation and highest dividends scored best. Those with low or no dividends and declining stock prices scored lowest.

This measure was chosen because experts believe that stock price is a good way to gauge a company’s financial picture. Analysts say stock prices ultimately reflect a company’s revenues, growth, earnings, cash flow and how well it is positioned for the future.

Wall Street does occasionally run up the prices of poor-performing companies. And it sometimes bludgeons good companies operating in industries that have fallen out of favor. But, since there’s money to be made by picking the most successful firms, the stock market rarely discriminates against one company or industry for long.

A second reason to use total shareholder return is that stockholders are a company’s owners. Ultimately, managers must answer whether or not they are providing something of value to the people who pay their salaries.

The one-year and seven-year performance rankings are shown in relation to the executive’s cash compensation--just salary and bonus--and their total compensation--salary, bonus, stock gains and company-paid perquisites.

The cash figure was singled out because it usually reflects payments for that year’s performance. Total compensation better reflects longer-term incentive programs, such as stock options and stock awards, which are designed to compensate executives for their extended contributions to a company’s performance.

The Times total compensation figures reflected only options that have been exercised and stock awards that have been received by managers. There is no current agreement in the compensation community on how to account for the future value of stock that has been granted but not received.

The compensation figures are compared to median salaries in broad industry categories--services, sales and heavy industry. Companies with revenues of more than $1 billion were grouped together.

Performance and Pay

The following table ranks California companies according to their 1991 performance and shows the compensation of their top executives, compared to their industry peers. It also shows companies’ longer-term performance and compares executive compensation that includes longer-term incentives.

1-year performance Top rank Company executive 1 Gap Inc. Donald G. Fisher 2 Broad Inc. Eli Broad 3 Charles Schwab Corp. Charles R. Schwab 4 Advanced Micro Devices Inc. W.J. Sanders III 5 Ross Stores Inc. Norman A. Ferber 6 American President Cos. W.B. Seaton 7 Jacobs Engineering Group Joseph J. Jacobs 8 Foundation Health Corp. Daniel D. Crowley 9 AST Research Inc. Safi U. Qureshey 10 Pic ‘n’ Save Corp. Lewis B. Merrifield 11 Caesars World Inc. Henry Gluck 12 Coast Savings Financial Inc. Ray Martin 13 Merisel Computer Products Inc. Michael D. Pickett 14 Anthem Electronics Inc. Robert S. Throop 15 Kaufman & Broad Home Corp. Bruce Karatz 16 20th Century Industries Louis W. Foster 17 Pacificare Health Systems Inc. Terry Hartshorn 18 Fleetwood Enterprises Inc. John C. Crean 19 BankAmerica Corp. Richard M. Rosenberg 20 Mattel Inc. John W. Amerman 21 Harper Group Inc. John H. Robinson 21 (tie) Northrop Corp. Kent Kresa 23 Lockheed Corp. D.M. Tellep 23 (tie) Price Co. Robert E. Price 23 (tie) Raychem Corp. Robert J. Saldich 26 Oracle Systems Corp. Lawrence J. Ellison 27 Golden West Financial Corp. Herbert M. Sandler 28 Hewlett-Packard Co. John A. Young 29 Allergan Gavin S. Herbert 29 (tie) Magnetek Inc. Frank Perna 31 Great Western Financial Corp. James F. Montgomery 31 (tie) Rohr Industries Inc. R.H. Goldsmith 33 Apple Computer Inc. John Sculley 34 Vons Cos. Roger E. Stangeland 35 First Interstate Bancorp Edward M. Carson 36 Safeway Inc. Peter A. Magowan 37 Zenith National Insurance Corp. Stanley R. Zax 38 Pacific Gas & Electric Co. Richard A. Clarke 39 Wells Fargo & Co. Carl E. Reichardt 40 Hexcel Corp. Robert L. Witt 41 Dole Food Co. David H. Murdock 41 (tie) Teledyne Inc. George A. Roberts 41 (tie) Transamerica Corp. James R. Harvey 44 Potlatch Corp. Richard B. Madden 45 Beckman Instruments Inc. Louis T. Rosso 45 (tie) Rykoff Sexton Inc. Roger W. Coleman 45 (tie) SCEcorp John E. Bryson 48 Applied Materials Inc. James C. Morgan 48 (tie) H.F. Ahmanson & Co. Richard H. Deihl 50 FHP International Corp. Robert Gumbiner 50 (tie) Sun Microsystems Inc. Scott G. McNealy 52 Hilton Hotels Corp. Barron Hilton 52 (tie) Pinkerton’s Inc. Thomas W. Wathen 52 (tie) Times Mirror Co. Robert F. Erburu 55 Genentech Inc. G. Kirk Raab 57 Intel Corp. Andrew S. Grove 57 (tie) McKesson Corp. Alan Seelenfreund 57 (tie) Varian Associates Inc. J. Tracy O’Rourke 59 Marshall Industries Gordon S. Marshall 60 Fluor Corp. Leslie G. McCraw 61 McClatchy Newspapers Inc. Erwin Potts 62 Granite Construction Inc. David H. Watts 63 Argonaut Group Inc. Charles E. Rinsch 63 (tie) Clorox C.R. Weaver 63 (tie) Walt Disney Co. Michael D. Eisner 66 Adia Services Inc. Walter W. MacAuley 67 American Building Maintenance R. David Anacker 67 (tie) Carl Karcher Enterprises Inc. Carl N. Karcher 67 (tie) Litton Industries Inc. Orion L. Hoch 70 Downey Savings & Loan Assn. Maurice L. McAlister 71 Amdahl Corp. John C. Lewis 71 (tie) National Medical Enterprises Inc. Richard K. Eamer 73 Consolidated Freightways Inc. Donald E. Moffitt 74 LSI Logic Corp. Wilfred J. Corrigan 75 Occidental Petroleum Corp. Ray R. Irani 75 (tie) Wyle Laboratories Charles M. Clough 77 Rockwell International Corp. Donald R. Beall 77 (tie) Tandon Corp. Sirjang Lal Tandon 79 Bergen Brunswig Corp. Robert E. Martini 79 (tie) San Diego Gas & Electric Co. Thomas A. Page 81 Pacific Telesis Group Sam Ginn 82 Chevron Corp. Kenneth T. Derr 83 Seagate Technology Inc. Alan F. Shugart 84 Tandem Computers Inc. James G. Treybig 85 Atlantic Richfield Co. Lodwrick M. Cook 86 Ameron Inc. Lawrence R. Tollenaere 86 (tie) City National Corp. Bram Goldsmith 88 Unocal Corp. Richard J. Stegemeier 89 Maxtor Corp. George M. Scalise 89 (tie) Quantum Corp. Stephen M. Berkley 91 Calmat Co. A. Frederick Gerstell 92 Conner Peripherals Inc. Finis F. Conner 93 Pacific Enterprises James R. Ukropina 94 Everex Systems Inc. Steve L. W. Hui 95 Glenfed Inc. Norman M. Coulson 96 Calfed Inc. Jerry St. Dennis 97 MGM Pathe Communications Alan Ladd Jr. 99 Guy F. Atkinson Co. Thomas J. Henderson 99 Western Digital Corp. Roger W. Johnson 100 Intermark Inc. R. Charles Scott

About This Table

One-Year Performance Rank

This shows company performance measured by stock price appreciation plus dividend payout in 1991. Statistics were compiled by Graef S. Crystal, a UC Berkeley professor. To eliminate the effect of temporary swings in market prices, he considered stock gains for six time periods in the year. He threw out the highest and lowest numbers and averaged the remaining four figures to come up with an annual average.

1991 cash Industry Company compensation median Gap Inc. $2,375,516 $826,733 Broad Inc. $1,006,250 $597,344 Charles Schwab Corp. $2,990,637 $597,344 Advanced Micro Devices Inc. $1,528,653 $1,023,775 Ross Stores Inc. $898,750 $471,386 American President Cos. $1,066,821 $1,023,775 Jacobs Engineering Group $716,310 $1,023,775 Foundation Health Corp. $744,813 $840,740 AST Research Inc. $2,792,000 $504,660 Pic ‘n’ Save Corp. $583,286 $471,386 Caesars World Inc. $1,132,941 $597,344 Coast Savings Financial Inc. $592,670 $597,344 Merisel Computer Products Inc. $518,497 $826,733 Anthem Electronics Inc. $491,743 $471,386 Kaufman & Broad Home Corp. $1,275,848 $504,660 20th Century Industries $504,000 $597,344 Pacificare Health Systems Inc. $871,479 $840,740 Fleetwood Enterprises Inc. $479,268 $1,023,775 BankAmerica Corp. $1,600,000 $840,740 Mattel Inc. $1,364,423 $1,023,775 Harper Group Inc. $238,000 $504,660 Northrop Corp. $1,261,250 $1,023,775 Lockheed Corp. $1,314,775 $1,023,775 Price Co. $270,000 $826,733 Raychem Corp. $448,767 $1,023,775 Oracle Systems Corp. $900,000 $840,740 Golden West Financial Corp. $778,827 $840,740 Hewlett-Packard Co. $1,519,420 $1,023,775 Allergan $882,471 $504,660 Magnetek Inc. $988,287 $1,023,775 Great Western Financial Corp. $1,719,437 $840,740 Rohr Industries Inc. $625,222 $1,023,775 Apple Computer Inc. $1,338,004 $1,023,775 Vons Cos. $1,009,417 $826,733 First Interstate Bancorp $665,200 $840,740 Safeway Inc. $1,263,910 $826,733 Zenith National Insurance Corp. $2,017,000 $597,344 Pacific Gas & Electric Co. $1,460,732 $1,023,775 Wells Fargo & Co. $775,000 $840,740 Hexcel Corp. $486,281 $504,660 Dole Food Co. $1,130,000 $826,733 Teledyne Inc. $692,286 $1,023,775 Transamerica Corp. $1,005,080 $1,023,775 Potlatch Corp. $940,900 $826,733 Beckman Instruments Inc. $535,224 $504,660 Rykoff Sexton Inc. $603,021 $826,733 SCEcorp $810,000 $840,740 Applied Materials Inc. $473,253 $504,660 H.F. Ahmanson & Co. $1,214,375 $840,740 FHP International Corp. $707,000 $840,740 Sun Microsystems Inc. $1,571,640 $1,023,775 Hilton Hotels Corp. $995,833 $840,740 Pinkerton’s Inc. $602,018 $597,344 Times Mirror Co. $909,414 $1,023,775 Genentech Inc. $875,650 $504,660 Intel Corp. $1,115,400 $1,023,775 McKesson Corp. $826,733 $826,733 Varian Associates Inc. $1,772,505 $1,023,775 Marshall Industries $471,386 $471,386 Fluor Corp. $1,546,211 $1,023,775 McClatchy Newspapers Inc. $633,138 $504,660 Granite Construction Inc. $550,000 $504,660 Argonaut Group Inc. $515,101 $597,344 Clorox $1,008,802 $1,023,775 Walt Disney Co. $5,441,543 $840,740 Adia Services Inc. $478,510 $597,344 American Building Maintenance $313,114 $597,344 Carl Karcher Enterprises Inc. $400,048 $471,386 Litton Industries Inc. $1,406,481 $1,023,775 Downey Savings & Loan Assn. $361,851 $597,344 Amdahl Corp. $839,620 $1,023,775 National Medical Enterprises Inc. $1,979,347 $840,740 Consolidated Freightways Inc. $622,962 $1,023,775 LSI Logic Corp. $477,092 $504,660 Occidental Petroleum Corp. $2,324,000 $1,023,775 Wyle Laboratories $730,000 $471,386 Rockwell International Corp. $1,516,966 $1,023,775 Tandon Corp. $402,109 $504,660 Bergen Brunswig Corp. $676,421 $826,733 San Diego Gas & Electric Co. $724,077 $1,023,775 Pacific Telesis Group $1,840,390 $840,740 Chevron Corp. $1,385,602 $1,023,775 Seagate Technology Inc. $1,179,420 $1,023,775 Tandem Computers Inc. $452,765 $1,023,775 Atlantic Richfield Co. $1,673,866 $1,023,775 Ameron Inc. $345,385 $504,660 City National Corp. $1,000,000 $597,344 Unocal Corp. $912,929 $1,023,775 Maxtor Corp. $418,916 $504,660 Quantum Corp. $1,038,748 $1,023,775 Calmat Co. $610,000 $504,660 Conner Peripherals Inc. $885,292 $1,023,775 Pacific Enterprises $594,031 $504,660 Everex Systems Inc. $228,553 $471,386 Glenfed Inc. $596,733 $840,740 Calfed Inc. $404,052 $840,740 MGM Pathe Communications $4,469,867 $597,344 Guy F. Atkinson Co. $403,000 $504,660 Western Digital Corp. $538,492 $504,660 Intermark Inc. $317,122 $504,660

About This Table

1991 Cash Compensation and Industry Median

These columns show executives’ salary and bonuses compared to median pay of top executives at similar companies. Median pay was computed by compiling compensation information revealed in the proxy statements of 150 of California’s largest publicly held corporations. The corporations were divided into three groups--heavy industry, financial/services and wholesale/retail--and two size categories--those with more than $1 billion in annual sales and those with less than $1 billion in sales. The median reflects the salary that is halfway between the highest and lowest numbers for companies of similar size in the same industry group.

1991 7-year pay plus performance long-term Industry Company rank incentives median Gap Inc. 3 $2,375,516 $1,009,417 Broad Inc. 12 $1,037,750 $749,252 Charles Schwab Corp. 2 $2,990,637 $749,252 Advanced Micro Devices Inc. 23 $1,528,653 $1,295,711 Ross Stores Inc. 9 $1,316,729 $491,743 American President Cos. 20 $4,180,572 $1,295,711 Jacobs Engineering Group 4 $716,310 $1,295,711 Foundation Health Corp. 1 $2,016,977 $927,924 AST Research Inc. 5 $2,811,000 $588,640 Pic ‘n’ Save Corp. 29 $7,161,772 $491,743 Caesars World Inc. 25 $1,615,741 $749,252 Coast Savings Financial Inc. 68 $592,670 $749,252 Merisel Computer Products Inc. 6 $1,478,171 $1,009,417 Anthem Electronics Inc. 8 $491,743 $491,743 Kaufman & Broad Home Corp. 19 $4,114,748 $588,640 20th Century Industries 10 $504,000 $749,252 Pacificare Health Systems Inc. 7 $909,937 $927,924 Fleetwood Enterprises Inc. 30 $917,414 $1,295,711 BankAmerica Corp. 14 $2,437,907 $927,924 Mattel Inc. 13 $1,787,078 $1,295,711 Harper Group Inc. 21 $241,830 $588,640 Northrop Corp. 60 $2,230,855 $1,295,711 Lockheed Corp. 52 $1,342,686 $1,295,711 Price Co. 33 $307,825 $1,009,417 Raychem Corp. 62 $609,457 $1,295,711 Oracle Systems Corp. 28 $900,000 $927,924 Golden West Financial Corp. 17 $778,827 $927,924 Hewlett-Packard Co. 54 $3,150,269 $1,295,711 Allergan 18 $1,404,499 $588,640 Magnetek Inc. 16 $993,023 $1,295,711 Great Western Financial Corp. 47 $1,795,967 $927,924 Rohr Industries Inc. 77 $776,704 $1,295,711 Apple Computer Inc. 32 $6,181,677 $1,295,711 Vons Cos. 16 $1,009,417 $1,009,417 First Interstate Bancorp 83 $862,574 $927,924 Safeway Inc. 11 $1,263,910 $1,009,417 Zenith National Insurance Corp. 67 $2,017,000 $749,252 Pacific Gas & Electric Co. 27 $1,485,257 $1,295,711 Wells Fargo & Co. 42 $945,911 $927,924 Hexcel Corp. 89 $568,697 $588,640 Dole Food Co. 37 $1,130,000 $1,009,417 Teledyne Inc. 92 $1,109,812 $1,295,711 Transamerica Corp. 65 $1,438,572 $1,295,711 Potlatch Corp. 43 $1,160,900 $1,009,417 Beckman Instruments Inc. 44 $535,224 $588,640 Rykoff Sexton Inc. 73 $603,021 $1,009,417 SCEcorp 36 $825,300 $927,924 Applied Materials Inc. 46 $1,199,447 $588,640 H.F. Ahmanson & Co. 66 $1,415,508 $927,924 FHP International Corp. 22 $724,000 $927,924 Sun Microsystems Inc. 24 $1,571,640 $1,295,711 Hilton Hotels Corp. 81 $1,000,042 $927,924 Pinkerton’s Inc. 26 $606,474 $749,252 Times Mirror Co. 76 $1,511,852 $1,295,711 Genentech Inc. 55 $1,141,573 $588,640 Intel Corp. 39 $1,115,400 $1,295,711 McKesson Corp. 58 $1,007,295 $1,009,417 Varian Associates Inc. 57 $2,383,155 $1,295,711 Marshall Industries 40 $540,099 $491,743 Fluor Corp. 32 $3,369,552 $1,295,711 McClatchy Newspapers Inc. 71 $638,788 $588,640 Granite Construction Inc. 38 $824,000 $588,640 Argonaut Group Inc. 41 $703,220 $749,252 Clorox 50 $2,338,968 $1,295,711 Walt Disney Co. 35 $5,448,481 $927,924 Adia Services Inc. 79 $1,729,647 $749,252 American Building Maintenance 59 $405,559 $749,252 Carl Karcher Enterprises Inc. 82 $400,048 $491,743 Litton Industries Inc. 75 $1,507,730 $1,295,711 Downey Savings & Loan Assn. 63 $361,851 $749,252 Amdahl Corp. 72 $1,046,645 $1,295,711 National Medical Enterprises Inc. 49 $17,551,778 $927,924 Consolidated Freightways Inc. 91 $622,962 $1,295,711 LSI Logic Corp. 85 $477,092 $588,640 Occidental Petroleum Corp. 80 $3,222,976 $1,295,711 Wyle Laboratories 70 $753,415 $491,743 Rockwell International Corp. 65 $1,574,159 $1,295,711 Tandon Corp. 78 $402,109 $588,640 Bergen Brunswig Corp. 56 $731,909 $1,009,417 San Diego Gas & Electric Co. 53 $1,248,790 $1,295,711 Pacific Telesis Group 48 $1,849,705 $927,924 Chevron Corp. 46 $1,762,807 $1,295,711 Seagate Technology Inc. 87 $1,179,420 $1,295,711 Tandem Computers Inc. 88 $452,765 $1,295,711 Atlantic Richfield Co. 52 $3,323,368 $1,295,711 Ameron Inc. 74 $345,385 $588,640 City National Corp. 86 $1,000,000 $749,252 Unocal Corp. 69 $923,918 $1,295,711 Maxtor Corp. 93 $1,038,916 $588,640 Quantum Corp. 34 $1,038,748 $1,295,711 Calmat Co. 84 $748,068 $588,640 Conner Peripherals Inc. 62 $895,006 $1,295,711 Pacific Enterprises 90 $600,631 $588,640 Everex Systems Inc. 96 $228,553 $491,743 Glenfed Inc. 95 $601,999 $927,924 Calfed Inc. 99 $420,343 $927,924 MGM Pathe Communications 97 $4,475,200 $749,252 Guy F. Atkinson Co. 94 $410,008 $588,640 Western Digital Corp. 98 $538,492 $588,640 Intermark Inc. 100 $317,122 $588,640

About This Table

Seven-Year Performance Rank

This shows how companies performed over a seven-year period. Crystal examined total shareholder returns--dividends plus gains in market value--for the past seven years. In cases where seven years of stock performance did not exist, he averaged performance over the available time period and used the average for the other years.

1991 Pay Plus Long-Term Incentives

To provide a measure of longer-term executive performance, a total compensation figure is shown, which includes options exercised and stock awards received by managers during 1991. These incentives, whose value accumulates over several years, are meant to compensate executives for longer-term performance. Total compensation may be inflated in one year for managers who recently exercised options.