Riding the Wave

Obscene. Egregious. Unconscionable.

These are the words used in this election year to lambaste not only the mud-slinging advertisements of politicos but also the pay of corporate executives.

And California certainly has its share of lavishly compensated bosses.

Consider the $9.3-million cash bonus in 1995 for Jim Jannard, the elusive founder and chairman of Oakley Inc., the Irvine-based sunglass maker that went public in a sizzling initial offering last August.

And the $8-million-plus cash bonuses for discount-stock titan Charles Schwab and Walt Disney Co. CEO Michael Eisner. And the $981,704 in state income taxes, paid on behalf of CEO Ray R. Irani by Occidental Petroleum Corp.--on top of his $2.8 million in salary and bonus.

Perhaps surprisingly, however, given the high-flying, attention-getting nature of many California companies--not to mention the high cost of living in the Golden State--the pay for corporate brass here is in line with that of their counterparts elsewhere in the nation.

“They’re dead-on, after you account for differences in company size and performance,” said Graef “Bud” Crystal, a compensation expert in San Diego. Of course, he hastened to add, one could argue that most high-ranking corporate types are overpaid.

Indeed, executives as a breed are being pilloried this spring, as public companies’ annual proxy statements to shareholders reveal the intricate details of pay packages that may appear unseemly and excessive in an era of layoffs, job insecurity and stagnant wages.

Among California’s top-paid executives, the median total cash compensation for 1995 came to nearly $1.5 million, according to an analysis prepared for The Times by Compensation Resource Group Inc., a Pasadena firm that consults on pay packages.

That’s about 46 times the pay of a typical California worker last year.

To compile the three lists that accompany this report, CRG surveyed the top five officials at California’s 300 largest publicly held companies, as ranked by 1995 sales. (Thus, the research doesn’t include executives in California who work for privately held firms or for companies based out of state.)

Using a cash measure alone covering 1995 salary and bonus, the top 100 list encompasses executives from a number of the usual suspects: old-line banks, utilities and other corporations such as Pacific Enterprises, parent of Southern California Gas Co.; Edison International, parent of Southern California Edison, the electric utility; Pacific Telesis Group, parent of Pacific Bell; Safeway Inc.; Walt Disney Co.; and Atlantic Richfield Co. It also includes a dozen Silicon Valley companies.

But salary and bonus tell only a piece of the story. Many executives from bigger, more mature companies drop off the list and others from smaller, more entrepreneurial ventures come aboard when other elements such as stock options are taken into account.

Many forms of executive pay are geared to rewarding future performance and cannot be tapped for many years. Evaluating the way companies compensate their executives entails wading into a morass of statistics and massaging them with formulas to give the components a suitable value.

It becomes a tricky proposition to attempt to arrive at numbers that satisfy all constituents--from a curious public to compensation experts to stockholder activists to executives sensitive to the notion that shareholders might wince at lofty totals.

Plenty of compensation packages these days have been dramatically lifted by stock option grants, which give executives the right to buy company shares at specified prices over certain periods.

For example, when CRG took those and other long-term stock incentives into account, the median pay for the top 100 executives totaled a much heftier $4.5 million.

“We’re seeing more and more organizations shifting into ‘variable pay’--pay tied in to performance that varies with the results of the organization,” said David Leach, who heads CRG’s compensation consulting practice. “Stock is making up more and more of the pay package. The advantage is linkage to shareholders.”

Shareholders have certainly been a happy lot as the market has headed into ever more rarefied air. But the long-running bull market has also been a rising tide that lifted a lot of compensation boats for those whose pay is joined to stock options.

That left many critics of executive pay crying foul over the unfortunate concurrence of soaring option grant values--even at mediocre companies--and massive layoffs. “The timing,” said Leach, “isn’t the best.”

Even so, at California companies in general, “there’s a strong pay-for-performance ethic,” said George B. Paulin, president of Frederic W. Cook & Co., a compensation consulting firm in Los Angeles.

In other words, executives here tend to earn their handsome packages by creating strong returns for shareholders.

Much of that has to do with the growth-oriented, technology-based economy in California. Many companies here are less mature than those in the East and Midwest. Pay packages reflect a keen interest in growth, with emphasis on the executives’ having equity stakes and therefore a strong motivation to build their franchises. (That contrasts sharply with utilities, oil companies and other cash-rich corporations that continue to reward executives the old-fashioned way--in cash.)

Forty of the executives on the straight salary-and-bonus list did not make the cut when stock options and awards were included.

A few California corporations--in particular, insurance companies Transamerica Corp. and SunAmerica Inc., and cellular company AirTouch Communications Inc.--are beginning to demand more of their leaders in return for higher pay.

This might seem small consolation for a typical California worker, who last year pulled in a relatively unprincely $32,500, according to the California Department of Finance. And even that fair-to-middling pay is skewed upward, given that the pay of top corporate officers was stirred into the brew.

Below are some of the highlights that emerged from Compensation Resource Group’s research:

* The man with the highest cash pay was Jannard, whose salary of $380,697 (a $27 raise from last year) and eye-popping bonus pushed him to the top at nearly $9.7 million. That’s a mere pittance contrasted with the $20.9 million he got in 1994, when the company was still private.

* At No. 2 on the cash list is Charles R. Schwab, who makes his living off the stock market. His pay rose 187% on the strength of the bullish investment climate. Right-hand man David S. Pottruck, a former college wrestler, came in fourth with a muscular $6.6 million in cash, up 400% from the previous year.

* W.J. “Jerry” Sanders III of Advanced Micro Devices Inc., who in the early 1990s came under fire from shareholder activists for extravagant pay (and for having a Rolls-Royce for a company car), ranked 10th on the cash list, despite taking a nearly 34% cut from the previous year. That cut, by the way, was in line with his company’s drop in shareholder return. (Shareholder return is stock price appreciation plus dividends.)

* Based on cash pay alone, all five top officers of BankAmerica Corp. made the list. BankAmerica handed out a lavish farewell package worth nearly $14 million--including option grants, a long-term incentive payout and a $3.7-million bonus--to retiring CEO Richard M. Rosenberg, under whose leadership the bank grew and prospered. He placed seventh on the cash list. Lewis W. Coleman (18th), who resigned as vice chairman and chief financial officer after being passed over for Rosenberg’s post, received, among other payments, $6.5 million related to his departure. Semiconductor giant Intel Corp. also had all five of its top executives on the roster.

* The case of Wilfred J. Corrigan demonstrates how a big year for option grants can inflate a pay package. The son of a dockworker from Liverpool, England, the chief executive of LSI Logic Corp. has been a Silicon Valley pioneer in the production of high-performance, custom semiconductors. All but a relatively modest $1.33 million of Corrigan’s $23.5-million package consisted of stock options. Corrigan placed 75th on the straight-cash list but No. 2 on the list showing current value of option grants.

(Corrigan’s 1.4 million share options will vest over four years. At present, he can exercise only 350,000 of them. LSI has been a stellar financial performer, with exceptional earnings and stock price gains. A $100 investment in 1990 would have been worth $1,048 in 1995, versus $323 for the Standard & Poor’s 500 index, according to the proxy.)

* Some individuals who made the cut have left (or been booted from) their companies, and in at least one case the whole company disappeared. Apple Computer Inc.’s Michael H. Spindler (66th) lost out during the recent changing of the guard at the troubled company. William E. B. Siart (24th), CEO of First Interstate Bancorp, was squeezed out when his Los Angeles bank was bought by Wells Fargo & Co.

* Depending on who does the analysis, Disney’s Eisner (third) is either a saving grace who deserves every penny or an overpaid guy who doesn’t give shareholders much for their investment. For 1995, he got a 130% premium over typical big-company-CEO pay, according to compensation expert Crystal. But Eisner’s package includes a fair element of risk and volatility. His bonus can and sometimes does drop to zero, as it did in 1993.

Eisner has not had a salary increase since 1984, and he makes less in straight salary ($750,000) than his new company president, Michael Ovitz ($1 million). (Then again, there is that $8-million bonus.)

* Then there’s Hewlett-Packard Co. The computer giant’s CEO, Lewis E. Platt (48th on the cash-only list), by all rights should be paid millions more, given his company’s sensational performance. Yet his total (including a modest $1.5 million in cash compensation plus long-term incentives) was $4.9 million.

* Every proxy tells a story, and some of the most enlightening reading lies in footnotes detailing compensation lumped into the nondescript category of “other.” At Occidental Petroleum, the big Los Angeles-based oil company, CEO Irani (14th) has that noteworthy “other” perquisite: The company pays his California state income tax every year. The bill totaled nearly $1 million for 1995. In 1994, it came to $647,136, and in 1993 it was $907,615. In another interesting quirk, Oxy pays Irani and other executives director’s fees to serve on the boards of companies that Oxy owns or controls. For Irani in 1995, that came to nearly $94,000. His total package, including stock options, came to $6.3 million.

* Jill E. Barad (56th), Mattel Inc.’s president and chief operating officer and the likely successor to Chief Executive John Amerman, weighed in as the only female entry on the salary-and-bonus list, with pay of $1.48 million. If stock options and other long-term incentives were added in, Linda Wachner would join her. Wachner took in a 1995 package worth $3.3 million as head of Authentic Fitness Corp., a Van Nuys maker of swimwear under such labels as Speedo and Catalina. That’s pin money compared with her total pay of $17.6 million from her other job as chairwoman, president and CEO of Warnaco, a New York apparel company that makes Calvin Klein underwear.

* Another note about stock option grants: More than half the executives who made the grade for the list of top 25 option grant values did not make the top 100 salary-and-bonus list. Many of those are from high-tech companies, which liberally use options to attract and retain key people.

* When it comes to value of option grants, the Gap’s Millard S. “Mickey” Drexler really takes the compensation cake. In 1995, he was promoted to chief executive and was awarded more than 4 million shares--a huge number. Under the pricing model used by CRG, they were valued at $34 million. They will become exercisable in increments starting in 1998.

In recent years, Drexler (30th on the cash list) managed to keep the retailer of jeans and other casual clothing clipping along at a fine pace even as other retailers were flagging. The options appear to be designed to keep Drexler in place--possibly longer than he might have been inclined to stay.

Interestingly, Drexler’s actual salary and bonus fell last year to $1.9 million, from $2.16 million the year before.

* Times staff writer John O’Dell in Orange County contributed to this report.