WASHINGTON (Aug. 19, 10:30 a.m. EDT) — Like the economy and corporate earnings, executive pay in the plastics industry came tumbling down in 2001.
Average compensation for the 100 best-paid executives fell below $1 million for the first time since 1996, brought down generally by poor corporate profits that cut into cash bonuses and poor stock prices that ate away at previously lucrative stock options.
For example, average salary and cash compensation dropped to $570,000, from $620,000 in 2000. And money made from cashing in stock options continued a three-year slide, from $278,000 in 1999 to $180,000 last year.
All in all, average pay was $987,000 last year, compared with $1.05 million in 2000. That's well below the industry's high-water mark of $1.48 million in high-flying 1997. The drop among plastics executives last year mirrors what BusinessWeek magazine said is happening in executive suites across all industries.
So does that mean pay for performance is working?
“I guess you can say that pay for performance worked in 2001, [but] it's going to take more evidence to make a believer out of most people,” said Judith Fischer, managing director of consulting firm Executive Compensation Advisory Services in Springfield, Va.
“My feeling is that boards of directors, on the whole, held down executive compensation in a bad year,” she said.
For plastics industry execs, cash bonuses dropped from an average of $270,000 in 2000 to $216,000 last year. Even base salaries, which were something of a saving grace in 2000 when they rose 7 percent, stayed flat at about $350,000 in 2001.
What is particularly interesting is that plastics industry stocks generally fared all right in 2001. After plummeting in 2000, the Plastics News stock index rose 20 percent last year. Still, pay held flat.
A big factor holding down pay for executives is that there are fewer opportunities to go elsewhere and make more money. One reason: the collapse of the Internet boom, said Nick Fountas, managing director with plastics industry executive recruiting firm JLI Boston: “It's tougher this year than ever before to find a better deal.”
Also, this year's ranking includes many firms that saw their earnings plunge, dampening pay.
For example, Spartech Corp.'s profit plunged to 59 percent of the level it reached a year before, so Chairman, Chief Executive Officer and President Brad Buechler did not get a cash bonus.
Unlike most companies, which guard how they figure bonuses like the CIA tries to protects a secret, Buechler's formula is spelled out in the company proxy. If company profit hits at least 75 percent of the previous year's level, he gets a bonus equal to 0.9 percent of the company's profit before income taxes. In 2000, that was $725,000.
But Buechler, who consistently is among the industry's best-paid executives, more than made up for any lost bonus last year with the industry's largest stock-option exercise, netting him $2.7 million. His overall pay hit $3.5 million, compared with $5.6 million in 2000.
Other execs saw cash bonuses drop — Tupperware Corp.'s Chairman and CEO E.V. Goings got nothing, compared with $915,000 in 2000.
Poor performance also killed bonuses at Lamson & Sessions Co. Chairman, President and CEO John Schulze's bonus was zero last year, compared with $630,000 in 2000. The story was similar at PW Eagle Inc.: Chief Executive Officer William Spell saw his drop from $363,000 in 2000 to zero in 2001.
While many executives did see bonuses eliminated, sometimes the firms awarded many more stock options or raised base salaries, actions that seemed to partially off-set the bonus loss.
Summa Industries Chairman, CEO and Chief Financial Officer Jim Swartwout did not get any bonus in 2001, after earning a $150,000 bonus in 2000. Swartwout said company profit dropped in what was a “severe recession.”
But Swartwout's base salary rose almost 15 percent in 2001, to $334,000, and he got three times the stock options he got the year before. His base salary in 1999 was $250,000.
For some executives, bonuses and pay went up in 2001, even as company performance faltered.
Atlantis Plastics Inc. President and CEO Anthony Bova saw his cash pay more than double, to $733,000, while the company stock remained flat and corporate profit rose only marginally, to $700,000 on sales of $247.8 million.
Bova got a bonus of $345,000 in 2001, compared with none the year before. Larry Horner, chairman of Atlantis' compensation committee, said Bova is a very capable executive and was rewarded for his strong effort to get the company in good shape to sell it. “He sweated a lot,” Horner said.
The company's stock has plummeted in recent years. Bova took over as head of Atlantis in 1995. According to company filings, $100 invested in the firm in 1996 would have been worth just one-third of that at the end of 2001.
For a few executives, 2001 bucked the trend. Company performance improved, and so did their pay.
Merit Medical Systems Inc. saw its sales jump to more than $104 million, up steadily from $60 million in 1997, and profit more than doubled its previous best year, in 1999.
Merit said the growth came in part from a companywide incentive pay program.
Chairman and CEO Fred Lampropoulos saw his cash pay jump almost 50 percent, to $485,000, and he exercised stock options worth $1 million.
Others made their money from healthy severance packages.
Foamex International Inc., which has had a CEO job tenure that almost could be measured in cycle time, placed two former chief executives in the top 20 last year simply on the basis of their severance. John Johnson left as CEO in January 2001 after two years with Foamex, and received a severance of $1.6 million. In December, Joseph Televantos departed as CEO, with a severance of $1.5 million.
At Alltrista Corp. (now called Jarden Corp.), former Chairman, President and CEO Thomas Clark got a severance package of $1.3 million when the firm was bought by a large shareholder, Marlin Partners II LP. Before the sale, one large shareholder had asked Clark to resign.
While executive pay in the plastics industry was down last year, long-term trends show the pay of top officers has risen much faster than that of rank-and-file workers.
Total compensation for the best-paid plastics industry executives has increased 90 percent since Plastics News started tracking it: from $520,000 in 1993 to $990,000 in 2001.
That compares with a 25 percent jump in average weekly wages for production workers in the U.S. plastics industry in the same period, according to Bureau of Labor Statistics data.
Wages, including overtime and premium shift pay, rose from $410.75 a week in 1993 to $514.70 in 2001 for SIC code 308, plastics processing. Those wages do not include annual bonuses or other awards.Total compensation, including annual bonuses, rose 29 percent in the same period for blue-collar workers in all manufacturing industries, BLS said.
Total compensation figures are not available for plastic processors.