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For Many Southland CEOs, the Pay Just Gets Better

Chiefs at some of the region's largest firms received big gains in 2002 despite falling shareholder returns, a Times survey shows.

June 15, 2003|Kathy M. Kristof | Times Staff Writer

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.

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