CEO Salaries Higher, But Options Rule Pay
By ANDREW SIMONS
Base salaries are back, but options still reign.
The median salary of Orange County’s chief executives inched up 2% to $456,000 last year, according to a study by El Segundo-based Vivient Consulting LLC. That happened as total compensation,including exercised stock options, bonuses and other payments,fell 5% to $937,000.
The compensation study is based on data from recent proxy statements and annual reports filed with the Securities and Exchange Commission by OC public companies.
The biggest bread winner: Milan Panic, Costa Mesa-based ICN Pharmaceutical Inc.’s former chief executive, who took home $63.6 million in salary, bonus, exercised stock options and other pay. Panic got a controversial $33 million bonus last year for selling off part of subsidiary Ribapharm Inc.
No. 2 on the list was William Foley, chief of Irvine-based Fidelity National Financial Inc., who had total compensation of $16.5 million. More than two-thirds of Foley’s compensation came from exercising stock options. But he also took home more in base salary and bonuses totaling $3.8 million.
Overall, median compensation from equity declined by 43% to $1.5 million for local executives.
Base salaries are on the rise,and stock is down,for a couple of reasons.
Many executives have seen their stock options,granted at inflated prices during the go-go days of the late 1990s,become virtually worthless.
Companies, meanwhile, are more reluctant to grant options as many have moved to include them as expenses on their income statements. The more options a company grants, the lower its earnings per share could be.
So businesses have turned to higher base pay and other methods of compensation such as restricted stock grants, cash bonuses and long-term incentive plans.
“I would expect there will be some interesting changes this year,” said Bonnie Schindler, a principal with Vivient who worked on the study. “Quite a few companies disclosed changes in payment plans.”
Take Broadcom Corp.
The Irvine chipmaker recently said it dumped its $110,500 salary cap to stay competitive with other companies that long had paid more,but offered fewer options than Broadcom did.
“A lot of our people took significant reductions in income,” said Broadcom Chief Executive Alan “Lanny” Ross. “They traded that for stock options in hopes the stock would appreciate. That hasn’t happened for three years, and I had to do something about that.”
Ross called the salary increases “modest.”
“But just because we’ve taken the cap off doesn’t mean everyone is going to be making tons of money,” he said.
Broadcom, which paid former chief executive Henry Nicholas an annual base salary of $110,000, now pays Ross $500,000.
Cypress-based Universal Electronics Inc. approved a 27% base salary increase to $400,000 for chief executive Paul Arling in November, with a 5% boost this year.
Other executives saw big bonuses in lieu of more stock. Stephen Scarborough, chief executive of Irvine-based homebuilder Standard Pacific Corp., scored $5.1 million in compensation last year,a 3% increase vs. the prior year. His compensation in-cluded $724,000 in salary and a $4.4 million bonus.
For the most part, compensation for executives went up as shareholders profited and down when otherwise, according to Vivient’s study.
Fidelity National saw a 48% rise in shareholder return last year amid brisk business thanks to surging home sales and a wave of refinancing spurred by low interest rates and rising home values. (Shareholder return was defined as the change in stock price,plus all dividends reinvested,for fiscal 2002.)
Likewise, Standard Pacific shareholders realized a 3% gain in share value in the same period. Despite the weak overall performance of U.S. stocks last year, Standard Pacific outperformed as a result of the hot housing market.
“Among the range of Orange County companies, the pay-for-performance linkage is working appropriately,” Vivient’s Schindler said.
But there were exceptions.
ICN’s Panic profited handsomely from the bonuses and stock options that vested after he guided ICN through its spinoff of Ribapharm. But ICN’s shareholder return was down 67%, and Panic resigned under shareholder pressure last year.
Paul Folino, chief executive of Costa Mesa’s Emulex Corp., received $3.4 million last year, with $2.6 million coming from stock gains. While that was far less than the $55 million he pocketed in 2001 from exercised stock options, it was enough to make Folino No. 8 on the executive compensation list, despite a 48% giveback in shareholder return last year.
Folino said you have to look at the long term.
“When I took over as CEO of Emulex in 1993, the total market value of the company was less than $60 million,” he said. “Today we’re approaching $2 billion in market cap and were just recently recognized by the Wall Street Journal as the fourth-best performing stock on all exchanges in the past five years and No. 16 in the past 10 years.”
Folino said most of his compensation comes from stock options and not cash from the company.
“The value of those options is a direct reflection of my ability to enhance shareholder value over time,” Folino said.
Other executives earned more during a down year for investors based on circumstance.
Take Santa Ana’s Ingram Micro Inc.
Ingram saw shareholder return decline 29% last year. At the same time, Ingram Chief Executive Kent Foster saw his compensation rise 150% to $2.9 million.
But Ingram, which cut 3,400 jobs worldwide since 2001, has pared more than $70 million in regular operating expenses and says it’s on track to see $160 million in profits from the moves by next year.
“There clearly are some extenuating circumstances, for instance, if there’s some sort of turnaround process going on,” Schindler said.
Meanwhile, Irvine’s Exult Inc. reported an 80% decline in shareholder value last year while chief executive John Madden’s total compensation jumped 130% to $1.6 million.
But shareholders are singing a happy tune this year with Exult’s share price up 128% to 8 at recent check. The company won some big contracts and posted its first profit in the fourth quarter.
Some executives earned no compensation last year.
Jim Jannard, chief executive of Foothill Ranch sunglasses maker Oakley Inc., had no salary, bonus or exercised stock options in 2002. Jannard, Oakley’s founder, came out of semiretirement in 2000 to run the sunglasses maker. He owns about $500 million worth of Oakley shares.
And Quest Software Inc. chief executive Vincent “Vinny” Smith went without salary, bonus or exercising stock options last year. He did take home $39,000 in “other” income. Smith owns about $420 million worth of Quest stock.
Going without salary is “more of a PR gesture,” Schindler said.
2002’s TOP PAID CEOs
Executive Company Compensation
(in millions)
Milan Panic ICN Pharmaceuticals $63.6
William Foley Fidelity National $16.5
Stephen ScarboroughStandard Pacific $5.1
Alan Boeckmann Fluor $4.5
Kenneth Roath Health Care Property $4
Source: company filings, Vivient Consulting LLC
2002’s LOWEST PAID CEOs
Executive Company Compensation
Jim Jannard Oakley $0
Vinny Smith Quest Software $39,000
Walter Straub Rainbow $264,000
V. Gorden Clemons CorVel $269,000
Manouch Moshayedi SimpleTech $301,000
Source: company filings, Vivient Consulting LLC
