Plastics industry stocks jumped an average of 24 percent in 1996. Sound like a prescription for a stock-option bonanza for the highest-paid plastics industry executives?
Industry titans sold less stock in 1996, leaving analysts to speculate that they either are waiting for a capital-gains tax cut or holding more of their stock, thinking the economy will continue to improve and stocks will continue to soar. The grass is always greener after the next annual report, so to speak.
According to Plastics News' annual survey of the top 100 paid executives at publicly owned plastics companies in the United States and Canada, stock options exercised by those executives dropped from $22.8 million in 1995, to about $18.3 million in 1996.
Not that 1996 wasn't a bonanza for executives, anyway. It just did not come as much from stocks.
Average total compensation for the top 100 rose 13 percent last year, to $840,000, and 22 executives pulled down more than $1 million last year, up from 18 in 1995. The executives made up for the decline in stock options with other long-term compensation plans and bonuses.
Topping the list was Paul Van Sickle, executive vice president of Orlando, Fla.-based Tupperware Corp., who made more than $6.26 million, including about $4.98 million from selling stock.
Van Sickle led a strong showing among executives at consumer products companies in general and Tupperware specifically, which had four of the six highest-paid executives. Consumer products companies had nine of the top 20 spots.
It was Van Sickle's first appearance on the list — because company officials said they probably did not have to report his salary until Tupperware spun off from its parent Premark International Inc. last year — but some other familiar names grace the top again.
Tupperware President and Chief Operating Officer E.V. Goings took the second spot, with $3.83 million, up from the seventh spot last year, and Rubbermaid Inc. Chairman and Chief Executive Officer Wolfgang R. Schmitt secured No. 3 with $2.51 million in total compensation.
Tupperware's Warren L. Batts took the No. 4 spot with nearly $2.5 million, while M.A. Hanna Co.'s M.D. Walker came in fifth, with $1.98 million.
According to industry compensation specialists, linking compensation to company performance continues to dominate executive pay packages.
Pay is increasingly in the form of stock options and other bonuses structured around meeting specific objectives, said James Aslaksen, a partner in the Chicago-based executive search firm Lamalie Associates. He does 95 percent of his work placing executives in plastics and chemical companies at salaries above $150,000 a year.
``It's specifically driven to performance,'' Aslaksen said. ``Stockholders are really getting tired of large payouts to executives who don't perform.''
As recently as five years ago, executive salaries in the industry more closely followed the traditional model, in a range of $225,000-$300,000 for a hypothetical firm with $400 million in sales, and a bonus of about 25 percent of annual salary, Aslaksen said.
Now, the same company probably would use a base salary in the lower end of that range, but sweeten it with a bonus of about 50 percent and add long-term incentives, such as stock or cash that require three to five years of service to mature, he said.
About 50 percent of executive pay typically is in stock options, with 30 percent in base salary and 20 percent in annual bonuses, according to Charles Peck, a compensation specialist with the New York-based Conference Board.
While supporters say that pay packages top-heavy with stock options link pay with corporate performance, critics question whether they force executives to pay too much attention to short-term stock prices and not enough to long-term growth.
Some executives did notice a drop in their pay, mirroring a slide in corporate performance. Uniroyal Technology Corp. saw an almost 19 percent decline in its two-year return on investment, and President and COO Robert Soran saw his base salary and bonus drop 4.67 percent in 1996.
In other cases, however, the relationship appears more complicated.
Rubbermaid's one-year return on investment dropped 9 percent from 1995-96, but the salary and bonus of CEO Schmitt rose 11.3 percent and his total pay package went from just under $2.1 million to $2.5 million.
Schmitt was rewarded for meeting goals set by the firm's board, including generating record cash flows and cutting inventories, which are key to restoring the firm to financial health, a spokeswoman said. She noted that he also took a steep pay cut in 1995, which Plastics News reported as nearly a 25 percent drop in combined salary and bonus from 1994.
Puretec Corp. Chairman and CEO Fred Broling recorded a 93 percent increase in salary and bonus in 1996, while the company experienced a two-year decline in its return on investment of 69 percent.
A company spokesman said Broling's 1996 compensation is skewed because it includes a $250,000 bonus given for merger-related work in 1995, but Broling will receive only a $125,000 bonus this year because of uncertainty over the firm's financial picture.
Overall, the executives did exercise fewer stock options. In 1995, six executives sold more than $1 million in unrestricted stock, including a $6 million and $3 million payout. This year, only two topped $1 million in such stock sales.
Executives made up for that in other ways, boosting pay through bonuses and long-term investment payouts much more so than in 1995.
Holding on to stock is an indication of executive confidence that the industry, and the stock market, will continue to grow and the shares will be worth more next year, said Dennis Gros, president of Gros Executive Search Inc. in Brentwood, Tenn. Employment still is growing for plastics firms, another indication of optimism about the future, he said.
Private firms also are relying more on equity to lure good executives and to address new hires' concerns that a family member will not take their job in the future, said John Dugan, president of J.H. Dugan & Associates Inc. in Carmel, Calif.
``Within the last five years, this has picked up'' for both public and private firms, he said. ``When business gets good like it has been in the last two years, it gets extremely competitive for good people.''