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Riding the Wave

Annual Survey Shows How the Soaring Stock Market Is Driving Up Compensation


Obscene. Egregious. Unconscionable.

These are the words used in this election year to lambaste not only the mud-slinging advertisements of politicos but also the pay of corporate executives.

And California certainly has its share of lavishly compensated bosses.

Consider the $9.3-million cash bonus in 1995 for Jim Jannard, the elusive founder and chairman of Oakley Inc., the Irvine-based sunglass maker that went public in a sizzling initial offering last August.

And the $8-million-plus cash bonuses for discount-stock titan Charles Schwab and Walt Disney Co. CEO Michael Eisner. And the $981,704 in state income taxes, paid on behalf of CEO Ray R. Irani by Occidental Petroleum Corp.--on top of his $2.8 million in salary and bonus.

For the Record
Los Angeles Times Wednesday May 29, 1996 Home Edition Business Part D Page 2 Financial Desk 1 inches; 34 words Type of Material: Correction
Executive pay--William F. Zuendt is president of Wells Fargo & Co. His title was incorrect in a Sunday story about executive pay. Also, the illustration accompanying the story was by Lorena Iniguez. Her credit line was inadvertently omitted.

Perhaps surprisingly, however, given the high-flying, attention-getting nature of many California companies--not to mention the high cost of living in the Golden State--the pay for corporate brass here is in line with that of their counterparts elsewhere in the nation.

"They're dead-on, after you account for differences in company size and performance," said Graef "Bud" Crystal, a compensation expert in San Diego. Of course, he hastened to add, one could argue that most high-ranking corporate types are overpaid.

Indeed, executives as a breed are being pilloried this spring, as public companies' annual proxy statements to shareholders reveal the intricate details of pay packages that may appear unseemly and excessive in an era of layoffs, job insecurity and stagnant wages.

Among California's top-paid executives, the median total cash compensation for 1995 came to nearly $1.5 million, according to an analysis prepared for The Times by Compensation Resource Group Inc., a Pasadena firm that consults on pay packages.

That's about 46 times the pay of a typical California worker last year.

To compile the three lists that accompany this report, CRG surveyed the top five officials at California's 300 largest publicly held companies, as ranked by 1995 sales. (Thus, the research doesn't include executives in California who work for privately held firms or for companies based out of state.)

Using a cash measure alone covering 1995 salary and bonus, the top 100 list encompasses executives from a number of the usual suspects: old-line banks, utilities and other corporations such as Pacific Enterprises, parent of Southern California Gas Co.; Edison International, parent of Southern California Edison, the electric utility; Pacific Telesis Group, parent of Pacific Bell; Safeway Inc.; Walt Disney Co.; and Atlantic Richfield Co. It also includes a dozen Silicon Valley companies.

But salary and bonus tell only a piece of the story. Many executives from bigger, more mature companies drop off the list and others from smaller, more entrepreneurial ventures come aboard when other elements such as stock options are taken into account.

Many forms of executive pay are geared to rewarding future performance and cannot be tapped for many years. Evaluating the way companies compensate their executives entails wading into a morass of statistics and massaging them with formulas to give the components a suitable value.

It becomes a tricky proposition to attempt to arrive at numbers that satisfy all constituents--from a curious public to compensation experts to stockholder activists to executives sensitive to the notion that shareholders might wince at lofty totals.

Plenty of compensation packages these days have been dramatically lifted by stock option grants, which give executives the right to buy company shares at specified prices over certain periods.

For example, when CRG took those and other long-term stock incentives into account, the median pay for the top 100 executives totaled a much heftier $4.5 million.

"We're seeing more and more organizations shifting into 'variable pay'--pay tied in to performance that varies with the results of the organization," said David Leach, who heads CRG's compensation consulting practice. "Stock is making up more and more of the pay package. The advantage is linkage to shareholders."

Shareholders have certainly been a happy lot as the market has headed into ever more rarefied air. But the long-running bull market has also been a rising tide that lifted a lot of compensation boats for those whose pay is joined to stock options.

That left many critics of executive pay crying foul over the unfortunate concurrence of soaring option grant values--even at mediocre companies--and massive layoffs. "The timing," said Leach, "isn't the best."

Even so, at California companies in general, "there's a strong pay-for-performance ethic," said George B. Paulin, president of Frederic W. Cook & Co., a compensation consulting firm in Los Angeles.

In other words, executives here tend to earn their handsome packages by creating strong returns for shareholders.

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