Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, April 15, 1993 TAG: 9304150120
SECTION: BUSINESS PAGE: B7 EDITION: METRO
SOURCE: Associated Press
DATELINE: NEW YORK LENGTH: Medium
EXECUTIVE PAY SHIFTS TO INCENTIVES
Is the pay trough shrinking in corporate America or are executives just chomping on a different kind of feed?As reports of 1992 executive pay packages roll in, companies and pay experts are bragging about a new environment in which corporate bosses supposedly are being forced to better earn their keep.
Businesses are granting more incentives such as stock options or specialized stock awards, in which the payoff for executives arrives only if the company's share price climbs. Such practices mean in theory that the executive is inspired to improve the company's performance.
"There's more and more emphasis being put on stock payment rather than cash," said Judy Fisher, publisher of Executive Compensation Reports, a newsletter in Fairfax, Va.
Colgate-Palmolive Co., for instance, awarded its chief executive, Reuben Mark, options to buy a generous one million shares of Colgate stock - one of the biggest such grants in corporate America.
Mark can buy bundles of stock over as long as 10 years if the price hits targets from about $61 to $100. It currently trades around $60. Colgate stock has advanced about 20 percent annually since Mark took over in 1984. But it has to increase another 80 percent for Mark to exercise all his options.
The rising popularity in such incentives is viewed as a bow to shareholders. Heat over executive pay in the last two years has led to increased disclosure of compensation practices, rising influence of corporate watchdogs and congressional hearings.
The advocacy group United Shareholders Association last year successfully influenced International Business Machines Corp. to change how it pays top executives. Other groups, including big shareholders such as pension funds, have targeted the pay practices of dozens of companies.
"There is, I think, a responsiveness by the corporation to its constituencies," said Pearl Meyer, an executive pay consultant in New York, "the need for not only turning an annual profit but for the strategic and qualitative issues that build businesses over the long term."
But some activists say deals like stock options are just another form of big, guaranteed pay. Graef Crystal, an executive pay watchdog, says the size of option grants increased sixfold in the last decade while corporate performance hasn't necessarily increased that much and salaries haven't fallen.
In addition to stock options, other pay reforms are emerging. Baxter International substituted stock for cash compensation. AST Research hired an independent consultant for its board compensation committee to respond to shareholder concerns. Continental Bank is requiring its chief executive to hold twice his annual salary in stock as an incentive.
Other trends: barring executives from selling stock for a set period and giving executives options instead of salary, signaling cash conservation to shareholders.
The stock options boom is expected to continue, at least for a while. Last week, a corporate accounting rule-making body proposed that companies be required to charge the stock option awards against earnings starting in 1997.
Also, options grants can be made when a stock is poised to rise, and executives can cash in when shares look like they're heading down. Some companies reprice options if a stock falls, allowing executives to buy and sell the shares at lower levels, increasing the chances for them to cash in.
"Stock options are sort of the best of a bad breed of ways to tie pay to performance," Crystal said.