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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Tito L. Nisperos Jr. who wrote (34420)	2/24/2000 11:21:00 PM
From: Jeffrey D	Read Replies (3) \| Respond to of 70976

Morgan gets a raise. That's nice, but don't you think your construction workers deserve a raise too? Jeff << Applied Materials Gets a Bargain in Chief Executive Morgan: Graef Crystal By Graef Crystal (Graef Crystal, author of ``In Search of Excess' and other books on executive compensation, is a columnist for Bloomberg News. His opinions don't necessarily reflect those of Bloomberg News.) Santa Rosa, California, Feb. 24 (Bloomberg) -- How can a chief executive get a fivefold pay raise and still be a great buy for shareholders? Answer: Start with being wildly underpaid for years and add a record of knocking the first pitch over the centerfield fence every time you come to the plate. The executive who fits that bill is James C. Morgan of Applied Materials Inc., the biggest semiconductor equipment manufacturer. Morgan has been CEO of the Santa Clara, California, company since 1977 and has been so consistently underpaid over the years that I began to think I should accumulate canned goods for him. Finally in its latest proxy statement, Applied Materials showed it had begun to pay him more in line with his accomplishments. Morgan's total pay soared to $10.5 million in fiscal 1999 from $2 million in 1998, according to my calculations. In my view, he is worth every penny and more. Take a look at the average annual return for Applied Materials for staggered periods back to 1983: APPLIED S&P 500 APPLIED ANNUAL ANNUAL RATIO TO PERIOD RETURN RETURN S&P 500 2/28/83 1/31/00 33.5% 17.6% 1.9 2/28/86 1/31/00 43.3% 17.0% 2.5 2/28/89 1/31/00 51.5% 18.4% 2.8 2/28/92 1/31/00 64.0% 19.2% 3.3 2/28/95 1/31/00 65.3% 26.0% 2.5 2/28/97 1/31/00 78.3% 23.2% 3.4 2/28/98 1/31/00 98.0% 17.5% 5.6 2/28/99 2/18/00 222.7% 10.6% 21.1 Applied Materials' compensation committee finally bestirred itself last year and recognized the quality of this performance. Morgan's bonus shot up to $1.3 million in fiscal 1999 from $264,000 in fiscal 1998 and $603,000 in fiscal 1997. His salary rose 4 percent to $779,000. But the real action, as always, was in the stock options. Using the Black-Scholes model to calculate a present value for the options, Morgan's grant jumped to $8.4 million from about $1 million in each year from 1994 through 1998. Still a Good Deal To gauge whether the big jump catapulted Morgan into the swollen ranks of overpaid executives, I ran his 1999 package through my 1998 pay model covering 854 major-company CEOs. (I don't yet have sufficient data to create a 1999 pay model.) After taking account of differences in company size and in shareholder return performance, and after increasing the 1998 pay figures by 20 percent to mimic what might have happened in 1999, I found that Morgan, even after his big raise, ended up 7 percent below the market. For a further proof of Morgan's pay modesty, consider that even after his options increased by 8.5 times, Morgan still ended up receiving options equal to only 0.07 percent of the outstanding shares. And of all the options granted that year, Morgan garnered only 2.2 percent of the total. Now take a look at two CEOs in the computer and software industry who couldn't be more different. First, we have Thomas M. Siebel of Siebel Systems Inc. During fiscal 1999, he received an option on 3 million shares, chewing up 3.3 percent of the total shares outstanding and 25.1 percent of all the shares granted to employees that year. Then there is Michael Dell of Dell Computer Corp. He received options on 12.8 million shares, equal to 0.50 percent of the shares outstanding. Moreover, those 12.8 million shares consumed 21.1 percent of all the shares granted to employees that year. So much for egalitarianism. Morgan, in sum, is a wonderful buy for his shareholders. They ought to be more than willing to see him disappear into his company's treasury for weeks at a time. As for me, I am thankful there aren't too many Jim Morgan's out there. Else I would have to give up the role of compensation watchdog and start up my Social Security pension checks.