SPECIAL REPORT: EXECUTIVE PAY : Five Mattel Executives Prove That Turnaround Makes Fair Pay
Mattel Inc. pays its executives well, and it’s certainly not play money.
All of Mattel’s top five executives ranked in the top 30 of the most highly compensated executives among the state’s 100 largest public companies--a record matched by no other company on the list.
Leading the way was Joseph C. Gandolfo, president of operations and the fourth-ranking officer of the El Segundo toy maker. His total compensation in 1993 of nearly $7.3 million--more than Mattel’s own chief executive, by virtue of awards of stock options and stock appreciation rights--was the fifth-highest of all executives on The Times’ list.
The other four officers and their total compensations are John W. Amerman, chairman and chief executive, $7.2 million (ranking sixth); Jill E. Barad, president and chief operating officer, nearly $5.4 million (10th); James E. Eskridge, now president of Mattel’s Fisher-Price unit, $4.1 million (24th), and Lindsey F. Williams, president of Mattel International, $3.7 million (29th).
It was those stock options and stock appreciation rights that made the Mattel executives’ compensation packages so lucrative. Stock analysts say that’s fitting, given the company’s excellent performance since Mattel was on the brink of bankruptcy in 1987.
That year, the company lost more than $90 million and began a plant-closing, product-adjusting restructuring.
But in the past five years, “the stock has been a phenomenal performer,” said Laurie Lively Smith, securities analyst at Seidler Cos. in Los Angeles. “Shareholders have made an enormous amount of money, and it’s only right that if management performs well, they should share in that and be (given incentives) to perform equally well in the future.”
The incentives are there. Under a long-term incentive plan, which is not included in The Times’ 1993 compensation tables, the executives stand to reap large amounts of Mattel stock, provided certain goals and conditions are met. For Amerman, the long-term plan could be worth $5.2 million, for Barad $4.1 million and for Eskridge $3.4 million. Although it was approved in late 1993 following Mattel’s merger with Fisher-Price, the shares were not granted until Jan. 1, and the executives will not be vested in the plan until 1997.
In light of recent history, the goals--which include matching or bettering shareholder returns of the Standard & Poor’s 500--seem attainable. The management team at Mattel today is largely responsible for the company’s climb to No. 1 among the world’s toy makers.
Led by Amerman, Mattel dumped tangential--and unsuccessful--ventures into electronics and publishing, refocusing on its historic strengths, particularly the Barbie and Hot Wheels toy lines.
Amerman opened up what he called the company’s “tunnel vision.” Barbie, once primarily a fashion plate, became the center of a universe of products, largely under Barad’s tutelage. Barbie is the unquestioned all-time champion of toy sales.
Through a series of licensing agreements and acquisitions, Mattel broadened its product line and customer base; most notable are its linkup with the Walt Disney Co. and its merger last year with Fisher-Price.
Until that acquisition, the stock market generally had fretted about Mattel’s dependence on Barbie for revenue and had held down the company’s stock price. Now Barbie accounts for about 40% of Mattel’s sales, a figure that is likely to dwindle further as the company puts its international marketing savvy to work on Fisher-Price products.
Although there is no indication that any of the executives were being wooed by other companies, “retention” bonuses were a part of their compensation packages in 1993, ranging from $600,000 for Amerman to $300,000 for Gandolfo.
“When you compare Mattel to its peer group of high-quality consumer non-durables, by probably every financial characteristic it would rank in the top five,” said Margaret B. Whitfield, an analyst who tracks the company for Hancock Institutional Equity Services in Washington. In the past five years, she said, the company’s earnings have grown 33.9%, and its average return on equity has been 37.9%.
The stock has been trading in the mid-$20s for most of this year, following a 5-for-4 split. That’s a sizable improvement from its nadir of less than $3 in 1987.
“The thinking of the board is, the stock of the company has risen by almost a factor of 10 over the past six or seven years, and the shareholders’ value has increased about $5 billion,” Mattel director Harold Brown said. Brown, defense secretary during the Carter Administration, is managing partner of E.M. Warburg, Pincus & Co., which has owned Mattel shares since it participated in the toy maker’s 1984 restructuring.
Much of the compensation, Brown said, “is dependent upon stock performance. So those who believe--and I’m one--that pay should depend on performance and be tied closely to the interests of the shareholders should view this as a good example of compensation.”
The calculated value of the Mattel executives’ stock options and grants is based on a conservative assumption of 5% annual appreciation of the company’s stock price throughout the term of the options.
(Although the company did the calculations, as required, for inclusion in its proxy materials, a Mattel spokesman contends that to count such “potential” value as compensation in 1993 is a “misrepresentation.” However, to achieve a 5% increase in value, a stock would have to perform only half as well as the market’s average over the past 50 years.)
