For Many Southland CEOs, the Pay Just Gets Better
Even amid a bear market, a sluggish economy and investor revolts, it still pays to be the boss.
Most chief executives at Southern California’s 100 largest companies received double-digit pay increases in 2002 even as shareholder returns for most of the firms declined, according to The Times’ annual survey of Southland executive compensation.
At computer and parts distributor Ingram Micro Inc., for example, sales fell, a $6-million profit turned into a $275-million loss and total shareholder return -- stock price gains plus any dividends -- was down more than 28% in 2002. Yet CEO Kent B. Foster received a 153% raise to $2.9 million, largely as the result of a $1.7-million performance bonus. It was the fourth-largest raise in cash pay among the executives in the survey.
Foster’s bonus was based on successfully implementing a cost-cutting plan that shuttered several distribution and return centers and cut 900 workers, a spokeswoman for the Santa Ana-based company said.
Those decisions eventually may make Ingram Micro a leaner -- and more profitable -- company. But it’s usually not a good idea to put rewards ahead of bottom-line results, said Matt Ward, chief executive of Westward Pay Strategies, a San Francisco compensation consulting firm.
“When performance is down,” Ward said, “your pay should not be up.”
Among other findings in the survey of Southland CEO pay, performed by Mercer Human Resource Consulting, total direct compensation -- salary and bonus plus restricted stock awards and realized gains from stock options -- for Southland CEOs grew much faster last year than the average worker’s paycheck.
The median CEO pay package, meaning half were larger and half smaller, was $1.7 million, up 11.4% from the year before. The median family income in Southern California last year was $50,005, up 1.1% from 2001.
Although only about one-third of the companies in the survey rewarded shareholders last year with a positive total return, nearly two-thirds of the CEOs saw their cash compensation increase and more than half received higher total direct compensation. Still, the median total return for the companies in the survey was minus 12.2%, beating the benchmark Standard & Poor’s 500 index’s 2002 total return of minus 22.1%.
Tying executive pay to yardsticks such as profit and total return made high-profile progress at some companies in the survey.
That was the case at Poway-based computer maker Gateway Inc. CEO Theodore W. Waitt’s annual pay is $250,000, but he elected not to take most of his salary the last two years “so that we could offer the amount as incentive awards to employees,” the company said in its proxy statement.
Waitt’s salary last year: $2,496. Gateway’s stock, meanwhile, plunged almost 61% as its sales fell 31% and the company recorded a loss of $297.7 million.
Another executive whose pay fell in tandem with his company’s performance was Robert Greenberg at Skechers USA Inc. The Manhattan Beach-based maker of trendy footwear lost some traction, its sales falling 1.7% and its stock tumbling almost 42%. Greenberg’s cash compensation was sliced in half, to $500,000.
“There is a clear push for a stronger link between pay and performance,” Mercer principal Dan Marcus said.
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What About Investors?
Nevertheless, some Southland chief executives clearly had a better year in 2002 than many of their shareholders.
At Los Angeles-based jeans maker Guess Inc., co-CEOs Maurice and Paul Marciano shared a salary and bonus of $1.8 million -- up 67% from the year before -- while the company’s stock plunged 44% for the year.
The Marciano brothers’ raise came despite a 15% drop in sales and a net loss of $11.3 million. The company’s stock swooned last year while a key index of apparel stocks -- of which Guess is a member -- fell 6.4%.
Guess President Carlos Alberini declined to comment on the company’s pay policies. According to the company’s proxy statement, the Marciano brothers’ raise was due to increases in the base salary -- not performance bonuses.
At El Segundo-based chip maker International Rectifier Corp., sales and profit fell last year and total return slid 47%. CEO Alexander Lidow garnered a 71% raise to $1.2 million.
“The bonus to Mr. Lidow was not made on a formula basis, but rather based on subjective decisions of the compensation committee,” the company said in its proxy statement.
By at least one measure, International Rectifier held its own with fellow chip makers in 2002. Its drop in total return last year nearly matched that of the Goldman Sachs index of semiconductor stocks.
An International Rectifier spokesman said the company has performed better than the rest of the semiconductor industry in the last three years. Lidow’s salary hasn’t increased during that time, the spokesman said, and his bonus is less than it was in 1999.
Several of the executives who received the biggest percentage increases in their cash compensation last year at least rewarded shareholders with positive returns. Quiksilver Inc., Guitar Center Inc. and Pacific Sunwear of California Inc. -- whose CEOs topped the list of percentage gainers in cash pay -- recorded 2002 total returns of 55%, 21.4% and 29.9%, respectively. Elizabeth M. McLaughlin of Hot Topic Inc. received a cash raise of 150%, No. 5 on that list. Shareholders in her City of Industry-based retail chain received a total return of 9.3%.
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Highest-Paid CEO
The highest-paid executive in the survey is Irwin Mark Jacobs, CEO of San Diego-based Qualcomm Inc. Jacobs received total direct compensation last year of $63.2 million. About $1.75 million of that was cash pay. The rest represented gains realized on Qualcomm stock options.
Qualcomm, which develops wireless telecommunications products, had a relatively good year despite the depressed telecom industry. Sales were up 13%, and the company returned to profitability. Its stock price slid nearly 28%, compared with a 54% drop in a benchmark index of telecom stocks.
The Southland’s cash pay leader is R. Chad Dreier, chief executive of Ryland Group Inc., with a salary and bonus of $9 million.
He also is the second-most highly paid executive in total direct compensation. Besides Dreier’s cash pay, the Calabasas-based homebuilder gave him 235,000 shares of restricted stock, valued at $12.2 million. Restricted stock is an outright gift that comes with few strings attached. Generally, the executive must remain at the company until the shares vest. In Dreier’s case, they will vest when the company hits certain targets for return on shareholder equity. Gains from the exercise of stock options brought Dreier’s total pay package to $26.3 million.
Ryland’s sales rose nearly 5% last year and profit jumped 41%, although shareholder return was down 8.7%.
Performance at Occidental Petroleum Corp., headed by CEO Ray R. Irani, the third-most highly paid executive in the survey -- was the reverse of Ryland’s. Los Angeles-based Oxy’s sales dropped 48% and net income fell 14% last year, but it notched a total return of 11% -- handily besting its benchmark index of oil company stocks, which fell 14%.
Irani’s cash pay rose 10% to $4.3 million and he received two awards of restricted stock valued at $10.4 million. Including a $5.7-million long-term incentive payment and $1.7 million in stock option gains, his total compensation was $22.1 million. In addition, Irani received $2 million in perks, including country club memberships, financial planning services and above-market interest on his deferred compensation plan.
Occidental justified Irani’s raise with a brochure that favorably compares some of the company’s operating results -- such as profit per barrel of crude -- with the company’s oil and gas industry peers. An Occidental spokesman said the results show that Irani earned his salary.
Compensation critic Nell Minow, editor of the corporate governance Web site Corporate Library, cited Irani’s package as an example of runaway executive pay, calling the company a “serial violator” of pay-for-performance standards.
Two chief executives in the survey -- Jim Jannard of Foothill Ranch-based Oakley Inc. and A. Jerrold Perenchio of L.A.-based Univision Communications Inc. -- were paid nothing. Both are major shareholders in their companies and have elected not to receive salaries for years.
Although 27 of the chief executives in the survey took a cut in cash pay, many of the pared paychecks still were substantial. Alex Yemenidjian at Santa Monica-based MGM Inc. saw a 32% pay reduction, but still received $2.5 million in total compensation.
At Unocal Corp. of El Segundo, CEO Charles R. Williamson’s pay was slashed 26%, but his cash compensation still came in at $1.4 million. Kathy Bronstein, chief executive of Wet Seal Inc. and one of only three women in the survey, watched her pay fall 51% to $1.3 million. The Foothill Ranch-based teen-clothing retailer fired Bronstein shortly after the first of the year.
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Hefty Severance Pay
But saying goodbye to the executive suite can have its own rewards. Two CEOs who left office during the year and thus weren’t included in the main pay ranking were entitled to hefty severance packages.
Milan Panic, former CEO of ICN Pharmaceuticals Inc. in Costa Mesa, and two other top executives left the company after some of its institutional shareholders were able to gain a majority of seats on the company’s board. Panic walked away with a packagevalued at more than $56 million, which included $500,000 in salary, a $33-million bonus ICN paid Panic during the six months he was employed there, a $12-million payment for the surrender of his stock options and a variety of other perks.
At Los Angeles-based Gemstar-TV Guide International Inc., Henry Yuen was paid $5 million in salary for the 10 months he served as the company’s chief executive last year. But the bulk of his total pay package of more than $34 million came from a severance agreement -- although that severance pay has been frozen by a court order issued at the request of federal investigators.
Despite such outsize pay packages, some critics remain optimistic that change is coming. Big institutional shareholders such as pension funds are beginning to balk at pay levels for managers who don’t perform, and the Securities and Exchange Commission is weighing rule changes that could give these shareholders more power.
“Shareholders have been enablers for addictive behavior by executives for years, but they are beginning to wake up and respond,” Minow said. “Next year, I think you will begin to see a genuine pressure on executive pay.”
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Southern California executive pay
This survey of executive pay rankings covers 100 publicly traded companies with headquarters in Southern California (Los Angeles, Imperial, Orange, Riverside, San Bernardino, San Diego, Santa Barbara and Ventura counties). The companies were selected based on their annual revenue.
The compensation data were collected from proxy statements and annual reports filed with the Securities and Exchange Commission. The information is for each company’s 2002 fiscal year. Companies that met the criteria for being included in the survey but had not filed 2002 compensation reports in time for this study are listed along with their executives’ 2001 pay data in an accompanying chart.
Total cash compensation is the sum of a chief executive’s annualized base salary and actual cash bonus, if any. The figure includes deferred payments but excludes signing bonuses, moving allowances and benefits.
The exectuvies are ranked by total direct compensation, which includes total cash compensation, plus any gains realized from the exercise of stock options during the fiscal year. It also includes the value of restricted stock awards and long-term incentive plan payouts made during the year.
When more than one person served as CEO during the year, the study includes the executive who was in the position at the end of the fiscal year, provided the executive was CEO for at least half the year. Three CEOs were excluded from the main ranking because they left their jobs during the year and their successors weren’t in office long enough for their pay information to be comparable. They are listed in a separate chart.
If a company had co-chief executives, the compensation for the two was combined to reflect the total pay provided for that position.
This executive pay study was conducted for The Times by the Los Angeles office of Mercer Human Resource Consulting, a global consulting firm. Working on the report for Mercer were Kevin Hickey, Dan Marcus, Jake Parker and Don Sagolla.
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*--* Total % change Total % change cash direct comp from comp from prev prev Rank Name Company (000s) year (000s) year 1 Irwin Mark Qualcomm $1,750 14% $63,190 4,012% Jacobs 2 R. Chad Ryland Group 9,031 52 26,344 267 Dreier 3 Ray R. Irani Occidental 4,290 10 22,108 145 Petroleum 4 Leonard D. WellPoint 6,937 102 21,418 120 Schaeffer Health Networks 5 Louis L. Superior 3,581 47 19,425 698 Borick Industries Intl 6 Bruce Karatz KB Home 8,677 15 16,505 -63 7 William P. Fidelity 3,725 0 16,145 143 Foley II National Financial 8 Kevin W. Amgen 2,780 55 12,601 -1 Sharer 9 Robert A. Mattel 3,750 83 11,750 472 Eckert 10 William H. IDEC 959 27 11,741 -58 Rastetter Pharmaceutic als 11 David Cheesecake 546 2 11,227 1,987 Overton Factory 12 Kent Kresa** Northrop 6,271 52 9,048 26 Grumman 13 Kent J. DaVita 1,440 -1 7,423 -22 Thiry 14 Noel G. Jacobs 1,751 10 6,032 -1 Watson Engineering Group 15 Michael D. Walt Disney 1,000 0 6,000 500 Eisner 16 Bernard Charlotte 556 20 5,919 1,177 Zeichner Russe Holding 17 Russell City National 1,933 14 5,634 231 Goldsmith 18 Stephen J. Standard 5,105 7 5,105 3 Scarborough Pacific 19 Arthur M. Macerich 668 34 4,819 310 Coppola 20 James A. Fremont 2,000 150 4,606 476 McIntyre General 21 James S. Ameron Intl 1,691 16 4,576 114 Marlen 22 Philip M. Avery 2,235 63 4,214 57 Neal Dennison 23 A. L. Fluor 2,250 NA 4,192 NA Boeckmann 24 Brian J. THQ 1,060 14 4,125 -9 Farrell 25 Lawrence M. Apria 1,200 NA 4,026 NA Higby Healthcare Group 26 Kenneth B. Health Care 1,310 144 4,012 -34 Roath** Property Inv 27 Alfonso Seminis 818 2 3,869 21 Romo Garza 28 John E. Edison Intl 2,020 -12 3,849 35 Bryson 29 Allen Chao Watson 890 8 3,469 320 Pharmaceutic als 30 Larry Guitar Center 3,347 235 3,347 235 Thomas/Mart y Albertson 31 Robert B. Quiksilver 2,523 321 3,245 441 McKnight Jr 32 Stephen L. Sempra Energy 2,678 -8 3,175 0 Baum 33 William Lyon William Lyon 2,984 19 2,984 19 Homes 34 Kent B. Ingram Micro 2,858 153 2,858 153 Foster 35 Michael W. IndyMac 1,860 2 2,844 -31 Perry Bancorp 36 Greg Palmer RemedyTemp 766 20 2,835 343 37 Stanley R. Zenith 2,730 58 2,730 58 Zax National Insurance 38 Henry T. Broadcom 98 -12 2,707 -89 Nicholas III* 39 Robert K. New Century 965 -12 2,661 122 Cole Financial 40 Matthew E. Western 1,865 88 2,625 -23 Massengill Digital 41 Howard G. PacifiCare 2,607 107 2,607 107 Phanstiel Health Systems 42 Elizabeth Hot Topic 1,002 150 2,595 18 M. McLaughlin 43 Alex Metro-Goldwy 2,500 -32 2,500 -32 Yemenidjian n-Mayer 44 John P. Beckman 871 -33 2,330 -15 Wareham Coulter 45 Richard S. Arden Realty 870 -10 2,284 37 Ziman 46 Greg H. Pacific 2,040 173 2,040 -37 Weaver Sunwear of California 47 David E. I. Allergan 2,015 15 2,015 15 Pyott 48 Robert J. Jack in the 1,157 36 2,001 -37 Nugent Box 49 Stephen F. Hilton Hotels 2,000 5 2,000 5 Bollenbach 50 Maurice and Guess 1,800 67 1,800 67 Paul Marciano 51 James C. Exult $794 18% $1,590 136% Madden V 52 Parker S. First 1,551 15 1,551 15 Kennedy American 53 Bruce C. Powerwave 517 39 1,500 2 Edwards Technologies 54 Jay M. Health Net 1,455 112 1,455 112 Gellert 55 Charles R. Unocal 1,361 -26 1,418 -30 Williamson 56 Bernard Arden Group 1,405 6 1,405 6 Briskin 57 Steven G. Big 5 1,329 64 1,329 64 Miller Sporting Goods 58 Kathy Wet Seal 1,278 -51 1,311 -73 Bronstein* 59 Robert Teledyne 973 13 1,300 24 Mehrabian Technologies 60 Larry D. Unova 943 16 1,268 1 Brady 61 Alexander Internationa 1,200 71 1,200 71 Lidow l Rectifier 62 David L. Alaris 1,205 -16 1,173 -19 Schlotterbe Medical ck 63 Gilbert A. PriceSmart 355 29 1,138 314 Partida* 64 Werner T. Iomega 1,080 50 1,080 50 Heid 65 Robert L. VCA Antech 1,038 35 1,038 35 Antin 66 Ronald A. Callaway Golf 950 -3 950 -3 Drapeau 67 David H. Reliance 914 -5 914 -5 Hannah Steel & Aluminum 68 Joseph A. Mercury Air 905 18 905 18 Czyzyk Group 69 Steven C. AMN 903 11 903 11 Francis Healthcare Services 70 Bruce W. 21st Century 900 5% 900 5% Marlow Insurance Group 71 Stephen P. Hines 872 -5 872 -5 Thigpen Horticulture 72 W.J. Zable Cubic 854 13 854 -22 73 Marvin Sicor 848 NA 848 NA Samson 74 Robert W. ICN 835 NA 835 NA O’Leary Pharmaceutic als 75 David G. Corinthian 833 28 833 28 Moore Colleges 76 Michael A. Edwards 829 -18 829 -18 Mussallem Lifesciences 77 Gene W. Ray Titan 788 -37 788 -89 78 Lee D. FileNet 777 48 777 42 Roberts 79 George Mercury 727 -2 727 -2 Joseph General 80 Ted Meisel Overture 725 8 725 8 Services 81 James V. Advanced 717 NA 717 NA Mazzo Medical Optics 82 Thomas A. WFS Financial 662 NA 707 NA Wolfe 83 Ross E. Smart & Final 700 -43 700 -43 Roeder 84 Richard N. Alliance 685 14 685 14 Zehner** Imaging 85 Dwight W. Conexant 657 -4 657 -4 Decker Systems 86 Lyle C. Invitrogen 650 34 650 34 Turner* 87 William S. Pacific 650 31 650 -38 Thomas Jr Capital Bancorp 88 Frank F. PC Mall 633 22 633 22 Khulusi 89 Donald J. SCPIE 593 -6 593 -6 Zuk Holdings 90 Floyd W. Sybron 542 -70 542 -70 Pickrell Jr Dental Specialties 91 Ernest S. Westcorp 537 8 537 8 Rady 92 Robert Skechers USA 500 -50 500 -50 Greenberg 93 Daniel D. Downey 476 -41 476 -41 Rosenthal Financial 94 Julia A. IHOP 451 NA 451 NA Stewart 95 Frank Perna MSC Software 400 -47 400 -48 Jr 96 Li-San Hwang Tetra Tech 335 -4 335 -4 97 David Gold 99 Cents 168 -8 168 -8 Only Stores 98 Theodore W. Gateway 2 -90 2 -100 Waitt 99 Jim Jannard Oakley 0 0 0 0 100 A. Jerrold Univision 0 0 0 0 Perenchio Communicatio ns
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Source: Mercer Human Resource Consulting
Los Angeles Times
NA = Not available *No longer CEO ** Formerly CEO, now chairman
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Departed executives
The three CEOs in this chart were excluded from the main pay ranking because they left their jobs before the end of the fiscal year, and their successors weren’t in office long enough to be included in the survey. The pay for these executives isn’t annualized and isn’t comparable with the data in the main compensation chart.
*--* Total cash % change Total direct % change comp from prev comp from prev Name Company (000s) year (000s) year Henry C. Gemstar-T $5,007 +9.30% $5,007 -73.90% Yuen* V Guide Intl Richard K2 $615 +37.50% $615 +37.50% M. Rodstein* * Michael Factory $606 %-19.00 $606 -19.00% M. 2-U Searles** Stores *
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* Doesn’t include $22.5-million termination fee; 2002 bonus doesn’t include $6.6 million paid for the settlement of unpaid salary, bonus and vacation for 2001 and 2002 due under termination agreement.
** Excludes $1.2 million in severance pay and other amounts due under employment contract.
*** Doesn’t include $319,731 in severance paid as of April 25, 2003.
Source: Mercer Human Resource Consulting
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Top 2001 pay increases
These companies were large enough in terms of annual revenue to be included in The Times’ executive compensation survey. However, because the necessary information wasn’t available in time, they are listed here with their CEOs’ 2001 compensation. This information is not comparable with data in the chart of 2002 pay.
*--* 2001 2001 total cash total direct compensation compensation Rank Executive Company (000s) (000s) 1 Jeffrey C. Tenet Healthcare $5,383 $116,433 Barbakow* 2 Robert A. Activision $495 $43,288 Kotick 3 Van B. Computer Sciences $1,164 $4,186 Honeycutt 4 Brian K. Petco Animal Supplies $1,881 $1,881 Devine 5 Michael M. Advanced Marketing $593 $1,860 Nicita Services 6 Andrew F. CKE Restaurants $1,500 $1,771 Puzder 7 Christopher Mentor $768 $1,236 J. Conway 8 Jose A. Infonet Services $912 $912 Collazo 9 H.K. Desai QLogic $768 $768 10 Jeremy C. Sola International $532 $532 Bishop 11 Charles J. Keystone Automotive $379 $379 Hogarty Industries
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*No longer CEO
Cash compensation includes salary and bonus. Total direct compensation includes cash compensation plus restricted stock grants, cash-based long-term incentives and gains realized from the exercise of stock options during the company’s fiscal year.
Source: Mercer Human Resource Consulting
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Top pay increases
Among the top executives of the 100 largest Southern California companies, the following received the biggest pay increases last year.
Biggest percentage increase in total cash compensation
*--* Total% change cash from comp previous Rank Executive Company (000s) year 1 Robert B. McKnight Jr Quiksilver $$2,523 321% 2 Larry Thomas/Marty Guitar Center $3,347 235% Albertson 3 Greg H. Weaver Pacific Sunwear of $2,040 173% Calif 4 Kent B. Foster Ingram Micro $2,858 153% 5 Elizabeth M. McLaughlin Hot Topic $1,002 150%
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Biggest percentage increase in total direct compensation
*--* Total % change direct from comp previous Rank Executive Company (000s) year 1 Irwin Mark Jacobs Qualcomm $63,190 4,012% 2 David Overton Cheesecake Factory $11,227 1,987% 3 Bernard Zeichner Charlotte Russe Holding $5,919 1,177% 4 Louis L. Borick Superior Industries Intl $19,425 698% 5 Michael D. Eisner Walt Disney $6,000 500%
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Cash compensation includes salary and bonus. Total direct compensation includes cash compensation plus restricted stock grants, cash-based long-term incentives and gains realized from the exercise of stock options during the company’s fiscal year.
Source: Mercer Human Resource Consulting
