All aboard. The gravy train has pulled into the executive compensation station.
Average pay for the 100 best-paid plastics industry executives rose 74 percent between 1996 and 1997, far above the 4-5 percent boost in hourly pay that many companies report. And that comes as the Plastics News stock index rose only 13 percent in 1997.
It is easy to bash executive pay, and it's true that good executives are hard to find. They generate more in shareholder wealth and solid jobs than they get in pay, and need to be rewarded in ways that align their pay with corporate performance. Many of the huge pay packages are not the result of a hike in yearly salary, but one-time exercises of stocks and other long-term compensation.
But it would be naive to believe that executive pay is determined solely by simple free-market supply and demand. After all, the pay including stock options for the top 100 executives since PN started its survey in 1993 has surged from slightly more than $500,000 to a little less than $1.5 million.
Even many compensation experts who generally are supportive of the current system say board independence remains a problem.
BPI Packaging Technologies Inc. kept renegotiating a $586,000 loan Chairman Dennis Caulfield owed, postponing payback and cutting interest that saved him $107,000. Meanwhile, sales dived and the company defaulted on its capital and operating leases as it struggled to reinvent itself. The board at the time had only one outside director.
Sometimes the size of pay packages draw attention.
Ivex Packaging Corp. President George Bayly took home a one-time check of $13.2 million last year from the company's initial public offering, part of a total stock package worth $19.8 million.
Compare that to Alltrista Corp. President Thomas Clark, who has about $1.3 million in stock and options in the firm.
Bayly's pay could be worth it for the rapidly growing Ivex, and compensation is negotiated, not necessarily what is deserved.
But consider this: Ivex is twice the size of Alltrista. Both companies are meeting their corporate goals, and Alltrista has shown consistent profit. Does the size of Bayly's award mean he is almost 15 times better as a president?
Some things warrant fixing. Here are some steps to take:
Work to make boards — and particularly compensation committees — more independent.
Tighten loopholes that do not require companies to fully disclose financial relationships between directors and management.
Encourage companies to raise the bar on compensation and better link executive pay to corporate performance that beats the market or peer groups.
Spread stock awards more broadly in companies so an unfair percentage of the wealth created does not accumulate at the top.