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SPECIAL REPORT: EXECUTIVE PAY : The More Things Change. . . : Despite Shareholder Complaints and Regulatory Pressure, Pay for California's Top Executives Continues to Climb


By many measures, 1992 was a watershed year for executive compensation.

Securities regulators cracked down on disclosure. Accounting regulators spelled out plans for new ways to count pay. And angry shareholders stormed management bastions demanding better performance for their money.

Indeed, it seems that there was only one thing that remained virtually constant: Top executives of California companies earned as much as ever last year. And in some cases, they earned much, much more.

In a year highlighted by public furor over runaway executive pay, the 100 top executives at California's 100 biggest companies--call them The California 100--earned a whopping $212.98 million. That's enough money to pay 1,000 college graduates the median annual wage of $37,283 for roughly six years.

And the total would have been nearly twice as high if it included every dollar that Michael Eisner, chairman and chief executive of Walt Disney Co., took home last year.

Using The Times' pay formula--which is based on figures reported in company proxy statements--Eisner earned about $7.5 million in 1992. However, Mickey's boss also exercised $197 million in stock options last year. That massive sum was not included in The Times' calculations because Disney's fiscal year ended in September and Eisner cashed in the options in December--too late to be reported in the company's proxy.

The gulf, meanwhile, between executive and hourly worker pay yawned ever wider last year. The average chief executive's wage increase, while small by historic standards at 4%, still amounted to twice the average increase given production workers, according to a survey by Sibson & Co.

"All through the '60s and '70s, worker and executive wages tracked pretty closely," said Mark Edwards, a principal at Sibson, a benefits consulting firm in San Francisco. "But a gap appeared in the '80s, and that gap has become a chasm."

Millard Drexler, president of The Gap, tops this year's list of the highestpaid executives at California's biggest public companies. Directors of the trendy San Francisco-based retailing company gave Drexler a $40-million gift of stock in 1992, pushing his total pay to $41.8 million.

That, incidentally, is more than twice the takehome pay of 1991's highest-paid California executive, National Medical Enterprises CEO Richard K. Eamer, who topped that year's list by earning a comparatively paltry $17 million. Eamer had earned the bulk of that amount by exercising stock options.

(Eamer took a 12% pay cut, earning a salary and bonus of $1,744,019 in 1992. And then his troubles really started. The Santa Monica-based firm's founder recently stepped down as chief executive in the wake of a scandal involving alleged fraudulent activity at NME's psychiatric hospitals. Since March, 1991, the company's shareholders have taken a beating too, as NME's stock price has fallen to about $9.25 from $24 a share--about a 60% decrease.)

Another 1992 compensation standout: W.J. Sanders III, chairman and chief executive of Advanced Micro Devices in Sunnyvale, exercised $19.4 million in stock options to push his total take-home past $22 million.

Sanders total earnings--including those stock gains--do not appear in The Times' annual listing of top California salaries, however. This year, the list excludes gains earned through the exercise of stock options.

Why? Stock options--which are rights to buy a company's shares at a set price in the future--usually become valuable years after they are granted. But executives tend to exercise them--that is, buy the shares--all at once. The result is huge one-time gains in compensation, even though the stock grants are intended to compensate executives over a period of years.

Nonetheless, past compensation surveys--The Times' and others--included these numbers because there was no good alternative. Companies simply didn't have to disclose what portion of the total was earned in the current year.

That changed in 1992, when the Securities and Exchange Commission demanded that companies disclose a value for stock options granted in the current year. This value better reflects an executive's actual earnings, although it too has some shortcomings.

Because the SEC gave companies two options for calculating the value of stock options--and because some firms continued to report under the old rules--it was hard to compare executives' pay in 1992. One of the new formulas (the so-called 5% method) tends to exaggerate the value of options; the other (known as the Black-Scholes method) can understate the value. And the one-third or so of companies that reported pay under old SEC guidelines didn't disclose the value of stock options granted to executives in 1992 at all.

Still, the detailed data reported in this section offers numerous bases for comparison.

For 1992, the median pay of The California 100--the package that was right in the middle of highest and lowest--added up to $1,161,228. The average pay was $2,129,843.

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