MSD is paid VERY well...read the fine print...FYI...
<<June 07, 1999, Issue: 845 Computer Reseller News
Section: Salary Survey -- Executive Compensation
Can Anyone Spare a Million?
Warren S. Hersch & Eric Hausman
The figures are staggering.
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Among the highest-paid executives at more than 125 high-tech companies, 80 enjoyed cash pay of more than $1 million in 1998. And 46 were granted stock options that could be worth more than $10 million each.
All told, high-tech companies dished out nearly $353 million in cash to their 500 best-paid executives, while those executives received stock options that could be worth $1.66 billion.
Even more mind-boggling: Twelve industry luminaries own at least $1 billion worth of stock in their companies. And the top 200 wealthiest stockholders own more than $185 billion worth of stock combined. Microsoft Corp. Chairman and Chief Executive Bill Gates alone owns more than $81 billion of his company's stock.
These are just some of the remarkable findings in the 1999 CRN Executive Salary Survey, a review of compensation and stockholdings as reported in high-tech companies' proxy reports.
Driving the pay packages upward, said compensation specialists, are a range of factors: a seemingly endless bull market that is spiraling high-tech shares to stratospheric levels; cut-throat competition among companies willing to pay top-flight chief executives nearly anything to boost performance; and, particularly in the Internet space, ever-shorter product and company life spans.
"These life cycles are the dog that wags the executive compensation tail," said Laurence Stybel, president of Stybel Peabody Lincolnshire, a Boston-based compensation consulting firm. "Once a company's owners define its objectives-be it an IPO, acquisition by a larger firm or increased profitability-then compensation must be made consistent with that objective."
Perhaps the best illustration of that principle is the cash paid Richard McGinn, chairman and chief executive of Lucent Technologies, last year's highest-paid high-tech executive.
The internetworking vendor paid McGinn a salary and cash bonus totaling nearly $13 million-including a $4.4- million annual bonus and a onetime $7.4 million cash award. The total represents a 457 percent increase over the $2.3 million McGinn garnered in 1997.
Explaining the $7.4 million windfall in its proxy statement, Lucent wrote that McGinn's "skillful handling" of the company's business was pivotal to Lucent's better-than-expected fiscal 1998 performance, including net income and earnings per share increases of 52 percent and 47 percent, respectively.
However, when companies offer unusually large bonuses, it usually signals more than just a thank-you for a job well done, said Steven Hall, managing director at Pearl Meyer & Partners Inc., New York. "You never know what went on during the year. So many times something special takes place," Hall said. For example, an executive may consider leaving the company and only decides to stay on the condition of a large cash bonus.
Following McGinn on the list of highest-paid executives were Louis Gerstner and Charles Wang, respectively, chairmen and chief executives of IBM Corp. and Computer Associates International Inc., with $9.4 million and $7- million in cash pay.
However, missed objectives or other factors dragged down pay-principally bonuses-of other high-tech chiefs, albeit less markedly.
For example, Seagate Technology Inc. former chairman and chief executive Alan Shugart saw his cash compensation fall to $750,006 last year from $1.4 million in 1997. Xerox Corp. Chief Executive Paul Allaire received nearly $2.6 million in salary and bonuses in 1998, compared with nearly $3 million in 1997. And Sun Microsystems Inc. President and Chief Executive Scott McNealy took home $1.7 million in 1998, down from $2.6 million the prior year.
Meanwhile, a less-than-sterling performance at Compaq Computer Corp. in recent quarters prompted the PC maker to sack its chairman and chief executive, Eckhard Pfeiffer, this year. And that, said market watchers, points up a darker side of high-tech.
"High-tech companies are singularly unforgiving of poor performance on the part of executives," said Steve Patchel, a Santa Clara, Calif.-based senior compensation consultant for Watson Wyatt. "Company boards assume their CEOs are A-level players. If they're not, and the company's stock takes a nosedive, then the [CEO] is gone."
Added Stybel Peabody Lincolnshire's Stybel: "There are no gray areas. Company boards say, 'We're either with you or you won't be with us.' "
Still, even when executives take the fall, they can usually take heart in golden parachutes. Witness the severance package for Pfeiffer-high-tech's seventh-highest-paid executive last year-whose employment agreement stipulates a payout of $5.9 million, or four times his base salary of $1.5 million.
But while cash plays a large role in compensation, it is stock that rules executive pay. So much so that some executives do not bother with cash compensation at all.
Included in latter camp were chief executives Steve Jobs of Apple Computer Inc. and Ross Cooley of pcOrder.com Inc., both of whom received $1 in take-home pay and no stock options. However, Cooley was able to hit pay dirt last year when pcOrder.com completed its IPO. Cooley's stockholdings in the company are worth more than $25 million.
Seemingly huge cash payouts paled in comparison with the eye-popping stock options granted executives in '98.
Far outdistancing the pack was Michael Dell. Priced according to the Black-Scholes model, Dell Computer Corp.'s founder, chairman and chief executive received $105.4 million in realizable stock options. That is in addition to Dell's $3.5 million in cash pay.
Dell's stock options surpassed by $40- million that of the runner-up, Cisco Systems Inc. President and Chief Executive John Chambers, who received options potentially worth $63.3 million.
Huge stock options grants like these have muted pressure to boost cash compensation, said experts. They noted that in recent years salaries have been growing by single digits compared with the double-digit growth of share valuations, company assets and revenue.
And a growing number of high-tech companies are seeing a big benefit in shifting from cash to noncash compensation: Stock options let boards reward executives for a job well done without the tax liability and drain on cash flow that salaries and bonuses entail, according to experts.
Still, the runup in stock options among high-tech companies-both in the United States and abroad-is increasingly a cause of concern for institutional investors, said experts.
"Stock option grants have diluted the voting power of institutional investors like pension funds," said J. Richard, president of J. Richard & Co., Half Moon Bay, Calif. "That's causing resistance" toward packages weighted heavily in equity, he said.
Critics also note that big option grants often also cause a disconnect between compensation and performance, particularly at Internet companies with skyrocketing stock valuations and financial results that have yet to show a profit.
Putting too much value in a company's short-term stock price is one area of concern in compensation trends, said Hall. Companies should pay more attention to building long-term value for a company than hitting a stock peak in one year, he said.
To counter this trend, some "best-of- class" companies link option grants, as with cash compensation, to company performance, wherein the vesting of options accelerates in tandem with improvements in company fundamentals.
In addition, many high-tech executives received pay packages that differed sharply from those of their peers and competitors.
But establishing parity in compensation packages with industry peers is a tough task, Patchel said. And it may not even be advisable. "It's more important that companies align pay to internal objectives and their corporate cultures," he said.
Added Richard: "People don't just work for the money. They also want career growth, [corporate] ethics, quality of life, respect and other intangibles. There are a lot of lifestyle issues to think about."
There are no lifestyle concerns when it comes to the top stockholders, however.
With his holdings valued at $81.63- billion, Gates could spend $1 million a day for 80,000 days, or more than 200 years, and still have millions to spare.
Paul Allen, who co-founded Microsoft with Gates, and Steven Ballmer, the company's president, also find themselves in pretty comfortable positions, with $22.92 billion and $18.96 billion in stockholdings, respectively.
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Either Way, They're Both Pretty Rich
Whether it's from a balloon cash payout or a huge stock ownership position, high-tech executives are living large. The results of the 1999 CRN Salary Survey showed McGinn, thanks to a bonus of nearly $12 million, topped the list of highest-paid executives, while Gates' more than $81 billion in Microsoft stockholdings put him far ahead of any other in that category.
BILL GATES
Chairman and CEO, Microsoft
Last Year's Market Cap: $182.1B
This Year's Market Cap: $330.2B
1998 Cash Pay: $542,297
Salary Rank: 213
Stockholdings Value: $81,626,994,628
Stockholdings Rank: 1
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RICHARD McGINN
Chairman and CEO, Lucent
Last Year's Market Cap: $94.7B
This Year's Market Cap: $152.7B
1998 Cash Pay: $12,961,652
Salary Rank: 1
Stockholdings Value: $27,513,990
Stockholdings Ranks: 117
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How The Data Was Compiled
The 1999 CRN Salary Survey examined more than 125 proxy statements from the industry's leading companies. Only proxies available for the 1998 fiscal year were included, except for Dell Computer Corp., which already filed its 1999 proxy.
The Top 200 Salary list, and complete Top 500 list (which is available at www.crn.com), were ranked based on the executives' cash pay; it is impossible to accurately rank based on options awarded because the option value will change by the time they are exercised.
Most proxies reveal option values based on a 5 percent stock rise and a 10 percent stock rise. CRN took the average of those two figures to determine "options realizable." For those companies that used the Black-Scholes model of option valuation, CRN used those estimates. The Top 200 Stockholdings list was based on shares owned as they were listed in the proxy statements, and closing stock prices on May 17. The proxy data was compiled by Victoria Maxey.
Copyright ® 1999 CMP Media Inc.>>
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