Putting His Pay Where His Mouth Is

John Lauer was writing a doctoral thesis ripping American companies for paying their CEOs too much when Oglebay Norton Co. came knocking on his door.

The 145-year-old Great Lakes shipping company, which also mines and sells sand for industrial use, wanted Lauer to be its chief executive officer.

The offer put Lauer in a dilemma: take the big paycheck or practice what he preaches and tie his compensation to the company’s growth. In what experts say is a rare gesture by a CEO, Lauer chose the latter.

“I can’t write this doctoral paper, I can’t believe this and have these kinds of values, and then the first crack out of the box go sell myself down the river,” he said.

Oglebay Norton came to Lauer because its board was searching for an experienced executive to expand the company and boost its stock value. The company has been consistently profitable but has grown little.

Lauer, 59, fit the bill.

He was president and chief operating officer of B.F. Goodrich Co. until he retired in 1995 to further his education and explore the idea of buying a business.

Many CEOs are paid a combination of salary, a bonus and stock options--a chance to buy company stock, often at a discount price.

But when Lauer accepted the Oglebay Norton job in December, he structured his contract so that he would receive no salary. He agreed, reluctantly he says, to accept a bonus if the company meets certain performance goals. He also became a shareholder, paying about $1 million for his shares.

The Oglebay Norton board also granted him stock options on about 384,000 company shares, which he can buy from 2001 through 2005, at $38 a share. That price is about 20% more than what the company’s stock was worth when he signed on.

“When we put the deal together, the way we designed it was that I wouldn’t get credit for market momentum. I’d get credit for true growth,” he said.

Tying his options to company growth makes his deal attractive for Oglebay Norton shareholders, Lauer said.

“It’s really a practical application of what I believe is appropriate to do if you are a CEO and you have the right circumstances for the individual and the company. Not every CEO can do this,” he said.

Lauer attained his wealth on past income, including a base annual salary of more than $500,000 his last few years at Goodrich.

A few years away from the corporate world “gave me time and the ability to research and reflect,” he said.

He is still working on his dissertation at Case Western Reserve University’s Weatherhead School. It is titled “Societal Consequences Resulting From Munificent CEO Compensation.”

Many CEOs have deals that aren’t in shareholders’ best interests, he said. They end up making “more money than certainly they need, and probably more money than they deserve,” Lauer said. “The problem with stock options today, in my opinion, is that they are too freely given and there is no performance aspect to them.”

Lauer could still qualify for a year-end bonus of about $200,000 if the company meets performance goals. That’s about what his predecessor--R. Thomas Green Jr.--received as a bonus. Green made about $340,000 in salary at Oglebay Norton.

“I didn’t want a bonus either,” Lauer said. “But the [board’s] compensation committee wanted me to have something at stake with the rest of management.”

Lauer’s deal is highly unusual, according to Brian Hall, associate professor of business administration at the Harvard Business School. Hall is an economist who specializes in research of executive compensation and incentive systems.

“My guess is it’s almost unprecedented,” he said. “This is a dramatic step.”

Hall said the market for top executives is so strong that he didn’t expect many others to follow Lauer’s course. David N. Smith, a compensation consultant for Buck Consultants Inc. in Cleveland, agreed.

“I cannot imagine that what he’s doing is going to become the norm,” Smith said.

In his first seven months in charge, Lauer has followed through on promises of growth for Oglebay Norton, which had sales of $145.2 million and earnings of $16.3 million in 1997.

The key move was the acquisition of Global Stone Corp. of Oakville, Canada. Global Stone is the fifth-largest producer of lime in North America. Buying the company expands Oglebay Norton beyond its previous focus on industrial sand, and more acquisitions are possible soon.

“If we couldn’t find something to double or triple the size of the company, then I wouldn’t be worth my salt anyway,” Lauer said.