Technology’s comeback has been good for the wealth of executives.
Sure, it’s not 1999, when public offerings, stock options and runaway share prices made instant billionaires. And, yes, tech stocks have had tough going this year on Wall Street.
But growing sales and profits in the past few years have meant big paydays for the folks at the helms of Orange County’s largest tech companies.
Take H.K. Desai, chief executive at storage networking gear maker QLogic Corp. in Aliso Viejo. He pulled in $3.7 million in compensation last year, according to recent regulatory filings. A year earlier, Desai saw about $12.3 million in compensation.
QLogic’s main rival, Costa Mesa-based Emulex Corp., gave its Chief Executive Paul Folino more than $3.6 million in pay and stock options last year. A year before, he landed $12 million.
Both Folino and Desai saw less in stock option grants as salaries and bonuses climbed.
The topper: Irvine-based chipmaker Broadcom Corp. paid first-year Chief Executive Scott McGregor nearly $48 million in total compensation, most in stock grants that haven’t yet vested.
Performance Tie
Executive pay packages have climbed in general. And increases at tech companies generally have been in line with historic norms. Even so, board committees that set executive pay are being more careful to tie compensation to company financials.
“We’re seeing a stronger alignment of pay and performance than we’ve ever seen,” said Joe Farris, senior executive compensation consultant at the San Francisco office of New York-based Mercer Human Resource Consulting LLC.
That’s a change from the go-go days of the late 1990s, when boards handed out hefty pay packages,often in stock options. Few questions about performance were asked with stock prices reaching their bubble levels.
Last year, tech executives saw a 6% increase in pay while the companies they led boosted earnings by 13%, Farris said.
Historically, executive pay packages have grown 5% to 8% annually. Last year, pay packages went up 8.6%, said Joseph Rich, president of New York-based Pearl Meyer & Partners.
More Grants, Less Options
A big change: fewer stock options and sometimes more straight stock grants.
Back in the 1990s, options were seen as a great way to reward executives. If executives performed well, the stock price would go up,and they’d make money on the options. If not, the executives would be left holding worthless shares.
Stock options,despite the controversy over backdating,continue to be a good incentive, Farris said. But boards increasingly are using other measures to rate executive performance.
Those measures can be wide ranging, from simple profit or sales growth to return on invested capital.
Another big force of change: New accounting rules that require companies to expense stock options in 2006.
That’s pushed some executive committees to pull back on stock options,and increase salaries or grant shares instead.
Broadcom is known for its liberal use of stock options throughout the years,and has been a critic of the change in stock options expensing.
In 2005, the chipmaker started to award restricted stocks along with options. McGregor’s pay package last year reflects that, though less than $10 million in grants were available his first year on the job.
McGregor received $600,000 in salary and a $431,425 bonus. He received $6.4 million in restricted shares, based on their value at the end of last year. More than two-thirds of those shares were unvested.
The company also gave him options worth $40.2 million.
Broadcom’s compensation committee was careful to point out McGregor’s contributions in light of the big payout, linking the pay to his performance.
“The committee continues to believe that, in light of Mr. McGregor’s individual performance and his unique contribution to the company’s performance during 2005, his salary, bonus and equity awards for 2005 were both competitive and fair and reasonable to the company and its shareholders,” the committee wrote. “During 2005, under Mr. McGregor’s direction, revenue increased by 11.3%, net income increased by 88.2%, and the company’s stock price increased by 46.1%.”
As with other tech stocks, shares of Broadcom have given back most of those gains in recent months,
One factor for the fall: the controversy over option grant dates.
Last month, Broadcom said it’s likely to restate more than five years of earnings and take a charge of more than $750 million to account for the timing of stock options.
Some option grants awarded from 2000 to 2002 were improperly backdated, the chipmaker’s audit committee said in a preliminary finding. Most of the options never were exercised as the company’s stock price fell below the grant price.
QLogic
At QLogic, the compensation committee rolled back its awarding of option grants as well.
It gave Desai 225,000 stock options in the 12 months ended March 31, down from 1.35 million during the previous year and 1.36 million in the year before that. Desai’s stake in the company is more than 3%.
Those 225 options were worth nearly $6 million if the stock price rose 10% annually.
Desai received $676,000 salary and a $750,000 bonus.
The audit committee tied the payouts to performance. It noted $75,000 of the bonus was tied to the company’s successful sale of its disk drive controller business, which QLogic did in 2005.
The committee also pointed to QLogic hitting revenue and profitability targets and either completing or announcing the acquisition of three companies.
Emulex
At Emulex, Folino saw a reduction in stock option grants from 750,000 to 400,000. Folino has a stake of 2% in the company.
“The compensation committee believes that the reduction in the equity portion of Mr. Folino’s compensation was appropriate in light of the increase in his base compensation and the total amount of options then held by Mr. Folino as a result of prior grants,” the committee said.
The committee increased Folino’s salary and bonus by about 5% to reflect the company’s financial performance, among other things.
At FileNet Corp., the Costa Mesa software maker handed Chief Executive Lee Roberts the same salary in 2005 as in 2004 and a bonus of $301,938, up about 20% from $249,495 in the previous year.
The compensation committee said Roberts and other executives got 79% of their target amount, based partly on performance of the company.
Also, the committee gave Roberts no stock options compared to the 80,000 he received a year earlier,after several years of receiving at least 60,000 in stock options.
Roberts received a stock grant worth $11.5 million that’s tied to performance.
