It hasn't exactly been a banner year for the paychecks of some of the industry's corporate chiefs.
Vic De Zen, the iconoclastic head of Royal Group Technologies Ltd., saw his bonus slashed from $3.7 million to $2.4 million, after shareholders protested that his pay went up 125 percent in 2002 while the return on their investment in Royal fell 40 percent.
Responding to that investor anger, Woodbridge, Ontario-based Royal revamped how it pays executives, switching from a system based on earnings growth to one based on return on capital. And the company set up its first compensation committee to monitor pay.
``They had a tough year and then bonuses were up for the CEO and the president,'' said David Vanderwood, senior vice president of Burgundy Asset Management in Toronto, an investor who objected to De Zen's compensation. ``What are you rewarding?''
Vanderwood and other shareholders praised the new plan but said they wanted more details.
Other executives voluntarily cut their own pay, recognizing that their companies and shareholders had not fared well.
Thomas Waltermire, chairman of the board at compounder PolyOne Corp., recommended to the company's board that they cut his pay 10 percent this year, to $621,000. He also recommended that they reduce his 2002 cash bonus because of difficult business conditions and company performance that was below expected levels.
The Cleveland-based firm lost $60 million last year and closed more than a dozen plants in 2001 and 2002. Total shareholder return dropped 57 percent, and $100 invested in PolyOne when it formed in 2000 was worth about $50 at the end of 2002.
It hardly makes for a boom year for executives.
The pay for the 100 best-paid plastics processing executives, measuring cash, stock grants and stock options exercised, was down about 2 percent in 2002, to $965,000. That's well off the high of $1.48 million in 1997 but well above the $520,000 figure for 1993, when Plastics News first started tracking compensation. The 2002 average figures do not include firms ranked for the first time, to make a better comparison with past years. Newcomer Magna International Inc. dominates the chart with the top four spots; if included, it would push up average pay to $1.25 million.
``You're going to see compensation be flat to down,'' said Nick Fountas, managing director of JLI Boston, a plastics industry executive-recruiting firm. A down market hurt pay, though executives can still ``expect a minimum amount of base compensation and incentive compensation in a flat year,'' he said.
Pay flattened mainly for one reason - compensation tied to stocks, either options or grants, fell off. But cash pay picked up strongly, partially compensating for the loss.
Average annual cash bonuses shot from $216,000 in 2001 to $335,000 in 2002. Six executives got supersized cash bonuses of more than $1 million last year, compared with three in 2001.
Keeping with the trend toward more cash pay, several of the larger firms in the ranking - Bemis Co. Inc., Newell Rubbermaid Co. and Tupperware Corp. - raised cash pay for their executives or loosened cash bonus plans out of concern that their executives were falling behind.
It can be hard to generalize about executive pay. For some, like Omnova Solutions Inc. Chairman Kevin McMullen, the company's return on investment was down 37 percent, and his annual cash pay dropped 20 percent.
It was the reverse for other top officers, like Pactiv's Richard Wambold, A. Schulman Inc.'s Terry Haines and Trex Co.'s Robert Matheny. Investors in those firms got strong returns in 2002, and their paychecks saw healthy increases.
For still others, however, poor stock performance coupled with healthy pay increases for the corporate chief led to sharp questions from investors.
For example, a $31.5 million consulting deal to a company affiliated with the chairman of automotive molder Magna International Inc. drew protests from one of Canada's largest institutional investors.
And a poor investment return at pipe maker Lamson & Sessions Co. raised the eyebrows of one large investor. Lamson Chairman John Schulze got a bonus, which boosted his annual cash pay 51 percent, to $712,000, while the company's one-year stock return was down 39 percent.
``Any time a CEO's pay goes up significantly while their results are going down, that is of concern to us,'' said Warren Isabelle, portfolio manager at Ironwood Capital Management in Boston, which owns 5.45 percent of Cleveland-based Lamson.
Isabelle said the company should adopt an executive pay system based on return on capital, not on earnings, as Royal did.
But, using an argument that illustrates some of the complexity in the executive pay debate, company officials said using earnings to award bonuses is appropriate because of the company's debt load.
``The last couple years it has been based on EBITDA because we've had very tight covenants with our banks because of the acquisitions in 2000,'' said Jim Abel, chief financial officer for Lamson & Sessions. ``We're trying to focus people's attention on that.''
Abel said he understands investor concerns, but said the company's stock was caught up in the telecom market bubble, and he said Lamson's profits and productivity are good.
Cash pay going up
While pay was flat this year, things may not stay that way. Several of the larger companies in the industry, with executives who typically rank in the top 20, tweaked pay last year in ways that seem likely to boost compensation. Generally, they said they were concerned their executives were falling behind.
Newell Rubbermaid Co., for example, adopted a more lucrative cash-bonus plan that will take effect this year.
President and CEO Joseph Galli Jr. got a $1.07 million cash bonus in 2002, but if the new 2003 plan had been in place last year, the same performance would have netted Galli a bonus of $1.4 million, the company said in a filing with the Securities and Exchange Commission.
A Rubbermaid official said that the Freeport, Ill.-based company reviewed pay of other CEOs and decided that ``we just didn't feel his compensation was appropriate.''
Packager Bemis Co. Inc. also looked at pay last year and determined it was falling behind. In 1998, a similar review found that Bemis' pay was also below its peers.
So the company raised the salary of CEO Jeff Curler 12 percent this year, to $820,000, and will give him a cash bonus target of 80 percent of his salary, compared with 68 percent under the old plan.
As a result of the 2002 study, the company said it wanted to go from the 42nd percentile to the 58th percentile in executive pay, compared to a peer group.
In 2002, Curler got a bonus of $1.03 million because the company met earnings-per-share targets, giving him a 50 percent boost in salary and bonus for the year.
Shareholder return was more modest last year: about 3 percent.
While that may not seem to match, if you look at Bemis stock over time, it has done reasonably well. An investment of $100 in the Minneapolis firm in 1997 was worth $127 at the end of 2002, compared with $97 for the S&P 500 and $76 for the peer group.
Bemis officials said they are conservative with pay, and have executives who remain with the firm a long time. That requires them to evaluate pay continually to stay competitive, a company official said.
Other firms did similar reviews last year. Hexcel Corp. Chairman David Berges will see his salary rise 22 percent in 2003, to $700,000, because the company said it was below comparable firms.
And Tupperware Chairman E.V. Goings also got a big raise in 2002, to $907,000, from $621,000 the year before. One survey said it was the largest raise in base salary among the Standard & Poor's 500 last year. The company said it was for work he has done since 1998 to revamp the company, and it works out to an average annual increase of 11.7 percent.
Tupperware said it looked at competitive CEO positions and wanted to reward his contributions in developing new sales channels and expanding into consumable and nutritional products.
The Orlando-based firm also upped his potential bonus to 100 percent of salary for last year, from 80 percent the previous year.
A Tupperware spokeswoman said the firm also adopted a long-term cash incentive program in 2003 as a retention tool and to compensate executives for achieving corporate objectives not as tied to stock price. Those who participate will get fewer stock options, she said.
During the last few years, an investment in Tupperware has not exactly been a huge success: $100 invested in 1997 was worth $67 at the end of 2002, well below the S&P 500 or the S&P consumer discretionary index.
The big picture
So how does the 2 percent drop in plastics industry compensation compare to other industries?
Business Week magazine's annual review of compensation in April found a 33 percent drop in CEO pay last year, which the magazine said was the result of a ``brutal'' stock market that shrunk option compensation and cash bonuses. That pushed the average back to 1996 levels for the companies it examined, the magazine said.
But a study released in June by the Corporate Library, a corporate governance research firm in Portland, Maine, found that executive pay went up in 2002. The median increase in total compensation for CEO's in the S&P 500 was 11.5 percent last year.
Paul Hodgson, a senior research associate specializing in executive pay for the group, said the reason for the increase is not clear. Pay grew in both 2001 and 2002, dispelling notions that 2002 numbers were merely a recovery year after a bad 2001.
For Hodgson, it means that executive compensation does not work as it should.
``I don't think it's working very efficiently,'' he said. It's simply too hard to gauge how well it works because the government only requires companies to disclose the sketchiest of information about how systems are designed, he said.
``There's too little disclosure of annual incentives schemes to test if that is working properly [and] I don't think long-term incentives are based on performance,'' he said.