Cha-ching. That's the sound heard as industry executives took stock of 1995's bull market, where stocks rose in value 33 percent, and cashed in. And taking stock is literally what executives of publicly held plastics processing companies today do in lieu of wage increases.
Stock-based compensation for chief executive officers continues to be the route boards of directors take, mainly as a way to tighten the link between pay and corporate performance, management consultants said.
An analysis of Plastics News' 1996 ranking of executive compensation shows the average salary decreased 9.4 percent — to $242,022 in 1995 from $267,171 in 1994. But don't despair, pay-for-performance plans helped boost executives' total compensation an average of 6 percent. Bonuses, often linked to a company's stock value, contributed to a 7.8 percent increase in median total annual compensation (salary plus annual bonus) in 1995.
As a result, membership of the million-dollar compensation club grew to 19, six more than last year.
In Plastics News' ranking, 52 of the 200 top-paid executives cashed in on long-term investment or stock-option plans. The value realized for shares acquired and restricted stock awards increased 35 percent from last year. Executives reaped stock-option gains ranging from $1,128 to $6 million last year.
Consider the stock incentives granted to James M. Ringler, president and chief operating officer at Premark International Inc. of Deerfield, Ill. Ringler led the list among plastics processors, with compensation of nearly $6.8 million. Of that total, $6 million came when he exercised options for 150,600 shares.
Ringler's compensation is double that of the next executive on the list, Martin D. Walker, chairman and chief executive at M.A. Hanna Co. of Cleveland, with $3.4 million. Consumer goods companies again dominated the top of Plastics News' annual ranking. Executives from Key Tronic Corp. of Spokane, Wash.; Rubbermaid Inc. of Wooster, Ohio; Uniflex Inc. of Hicksville, N.Y.; Newell Co. of Freeport, Ill.; and Premark filled 12 of the top 20 spots this year.
Stanley Hiller Jr., Key Tronic CEO through August 1995 and board chairman, received no salary or bonus. However, his $3,042,056 compensation came when he exercised options on 486,729 shares.
T.J. Dermot Dunphy, president and CEO of Sealed Air Corp. of Saddle Brook, N.J., leaped to fourth from 30th on the list. Although his combined salary and bonus in-creased a mere 6 percent (his salary actually remained at $363,600, a figure established in 1991), he received $1.59 million from re-stricted stock amounts. The packager and CEO both believe compensation should be weighted more heavily toward long-term incentive compensation de-rived from equity ownership, according to the company's proxy statement.
E.V. Goings, Premark's executive vice president and Orlan-do, Fla.-based Tupperware Corp.'s president and COO, received the largest bonus of officials on the list - $834,137. The highest salary goes to Warren L. Batts, Premark chairman and CEO, who topped 1995's ranking. He gets $750,000. But his combined salary and bonus fell 33 percent from last year. The decrease reflects a failure to meet economic value-added goals.
Stock-based pay is being used increasingly by corporations to deflect criticism from an angry public for the widening salary gap between executives and hourly workers.
The average executive's wage increased 4 percent last year, the lowest level recorded since this tracking began in 1975, but was still 11/2 times the average increase given production workers, according to New York-based Conference Board. The business group studies about 700 firms.
``We've seen a clear pattern over the last few years in terms of using stock ownership to put more CEO pay `at risk,' relative to the economic health of their companies,'' said Paula H. Todd of New York-based management consulting firm Towers Perrin. Todd is a principal and head of the firm's executive compensation research effort.
As an example, Todd said if a CEO owns five times his or her base salary in company stock and the stock price drops 20 percent in a year, that basically erases the CEO's base salary for the year.
``Just a few years ago, that kind of forced connection between pay and performance through stock ownership was inconceivable,'' she said.
Consequently, CEOs feel pressure from boards of directors, shareholders and even banks, said Dennis Gross of Nashville, Tenn.-based Gross Executive Services Inc., a recruiting services firm for plastics processors and suppliers.
``What is happening is that executives at the top levels are being squeezed out - jobs are being eliminated or they are being removed from their positions. As a result, it is essential they justify what they are making,'' he said.
Under pay-for-performance, bonuses are more tailored to an individual's ability, such as a manager of quality trying to reduce a product's rejection rate, said Ron Eliason, vice president of Cleveland-based Midland Consultants.
``Incentives give executives a target to shoot for,'' he said. ``It becomes a win-win situation for the company and the worker if incentives are met.''
But disadvantages can be found if executives fudge numbers or do something to boost performance pay, Eliason said.
``This would be the most-horrendous scenario,'' he said.
Pay-for-performance hit home for Wolfgang R. Schmitt of Rubbermaid. More accurately, it cost the chairman and CEO $258,282 in salary and bonus because of the company's financial performance, which saw profit drop 74 percent in 1995. However, a 24 percent plunge in salary and bonus was offset by restricted stock awards totaling $863,156.
Gains reported by executives on option shares, although recorded in a single 12-month period, may represent an accumulation of options over several years. Executives may opt to retain their shares and boost their holdings in a company, or cash out.