AOL Time Warner Rewards Were Lavish in a Bad Year
washingtonpost.com
Despite a tough financial year, AOL Time Warner Inc.'s chairman and chief executive each was rewarded in 2001 with stock options worth an estimated $76 million, according to the company's proxy statement filed with the Securities and Exchange Commission yesterday.
Steve Case, the chairman, earned $1 million in base salary last year, up 38 percent from 2000. He did not receive a cash bonus but was granted options on 4 million shares. The options cover two years, last year and this.
Case got the options despite a trying year for the media company, its first since America Online acquired Time Warner. With the advertising market weakening and the economy softening, AOL Time Warner faltered in its projections on revenue growth and cash flow last year, putting pressure on its stock price.
"His base salary is certainly big, but he's in a lot of company for a company this big," said Kevin J. Murphy, a professor of finance at the University of Southern California's Marshall School of Business.
Murphy, an executive compensation expert, said Case received "a very aggressive options grant. It was a generous options grant. But we see more and more of these mega-grants and we're becoming more numb to them."
Case can't cash in his options until AOL Time Warner's stock price -- anemic, of late -- begins to move up. Half of his options have an exercise price of $48.96. A million shares have a strike price of $61.20 and another million can be triggered at $73.44.
Yesterday, AOL Time Warner's stock closed at $23.30 a share, down 91 cents, near its 52-week low.
Also last year, Case exercised options issued in previous years worth $127.29 million.
Gerald M. Levin, the company's chief executive until he steps down in May, earned $1 million in base pay, the same as in 2000. Like Case, he received options on 4 million shares worth $76.09 million.
Case and Levin were rewarded despite a year in which AOL Time Warner reported a net loss of $4.9 billion, compared with a net loss of $4.4 billion the previous year. Revenue in 2001 rose 6 percent, to $38.2 billion, from $36.2 billion the previous year. That was well off its early-year projection, when it predicted its annual revenue would grow by 12 percent to 15 percent.
AOL Time Warner's stock ended last year at $32.09 a share, down 8 percent from $34.80 a year earlier.
Tricia Primrose, an AOL Time Warner spokeswoman, said the executives' compensation is justified. "We believe that our executives' compensation packages successfully accomplishes our goal of aligning the interests of our executives with the interest of our shareholders," she said.
The company also said none of its highest-paid executives received cash bonuses last year, and that no bonuses are planned this year.
As for Case's hefty options exercise last year, the company said they were appropriate for an executive who played a key role in creating the world's largest media and Internet company.
"Steve Case founded this business and built up an extremely valuable company," Primrose said.
Richard D. Parsons, the co-chief operating officer who will succeed Levin as chief executive, received options on 3.5 million shares worth $66.59 million, as did Robert W. Pittman, the other co-chief operating officer.
Vice chairmen Kenneth J. Novack and Ted Turner each was granted options on 2 million shares valued at $38.04 million.
At AOL Time Warner's annual meeting on May 16 in New York, the company will call for the election of 15 directors, all of whom already are on the board. Only Levin will not stand for reelection. With the board reduced by one member, the balance of power tips in favor of America Online. At the time of the merger, AOL and Time Warner each got eight board members. Levin's departure will give AOL's people eight, while Time Warner has seven. |
