2004 was a very good year for executive paychecks in the plastics industry: Average pay shot up 36 percent, to $1.22 million, as some of those in the corner office saw rewards little seen since the glory days of the 1990s.
After several years of flat or dropping pay for the best-paid executives, 2004 looked like a plastics gold rush. Pay was up across the board: Base salaries rose a very healthy 8 percent, cash bonuses were up an average of nearly $100,000 and many more executives got supersize stock awards in 2004.
It all added up to 41 executives making more than $1 million for the year, compared with 30 cracking that barrier in 2003.
The plastics-industry figures mesh with other surveys of executive pay. A Wall Street Journal analysis, done by Mercer Human Resources Consulting LLC, reported a 41 percent jump in total pay in 2004. An analysis by research firm Equilar Inc., which gathered the data for the Plastics News survey, reported total pay among executives at small-cap firms rose 13.7 percent.
Calculating executive pay is, by nature, somewhat tricky. Awards received in one year, such as cashing in stock options, can represent gains from several years of work. And some of the overall increase in our survey came from executives who left and collected sizable exit packages.
But even when you look at areas meant to measure performance in a single year, such as base salary and bonus, it's clear that pay was going up more than the 3 percent or 4 percent typical in most jobs. The 8 percent jump in base pay in 2004, for example, followed a 9 percent rise in 2003.
``We've definitely seen an uptick in executive pay, regardless of how it's calculated,'' said Bill Coleman, Salary.com senior vice president of compensation and a former executive pay consultant for Watson Wyatt and PricewaterhouseCoopers.
Equilar said restricted stock grants and cash bonuses drove overall executive pay growth in 2004, a situation mirrored in plastics. Some experts said stock grants are proving more popular as companies shy away from now-controversial stock options.
In 2004, 16 executives at plastics processors got stock grants worth more than $500,000, compared with just nine the year before.
In large part, companies are moving away from options because they expect changes in accounting rules that in the near future will require options to be included on income statements, said James Aslaksen, global sector leader for performance materials for executive recruiter Korn/Ferry International.
Now that stock options no longer are seen as ``freebie'' forms of pay that don't show up against earnings, and have to be treated like other forms of pay, they are becoming less popular, observers said.
The biggest stock-grant award went to Mark Hogan, new president of Magna International Inc., who got a $9 million, pro-athlete-style signing bonus when he took the job in August 2004.
Others saw similar mega-grants: Bemis Co. Inc.'s Jeff Curler got $2.5 million in stock grants, $1 million more than 2003, and Newell Rubbermaid Inc.'s Joseph Galli got $1.3 million in stocks, after not getting grant awards in 2003.
While some tout grants as encouraging less-risky behavior for executives, since grants have value to retain while options only have value if the stock price rises a lot, others take a more cynical approach. They note that compensation has moved away from options only since the stock market stumbled and options no longer are the payday they once were.
``Everybody wanted to win the lottery [with stock options],'' Coleman said. ``Now, broad-based option plans are less popular.''
Whatever the reasons, the past couple years have seen executive pay ``rebalance'' away from a heavy reliance on options, in favor of cash and other stock-based vehicles, Coleman said.
Many at the top of Plastics News rankings reaped rewards all around.
Galli's total pay, for example, almost tripled in 2004 to $4.4 million, as he got a cash bonus of $1.5 million, compared with $234,000 the year before. Newell said it gives out bonuses based on meeting cash-flow and earnings-per-share targets.
Tupperware Corp. Chief Executive Officer Rick Goings saw a $1.8 million cash bonus push his pay to $3.6 million for the year - a bonus the company said he got because it exceeded targeted profit and cash flow.
Company financials show earnings after taxes rose more than 81 percent to $87 million for a variety of reasons, including a weaker U.S. dollar, a lower effective tax rate and selling property around its Orlando, Fla., headquarters.
On top of his $1.8 million cash bonus, Goings got an additional $152,000 for his role in selling company real estate, which netted Tupperware $11.6 million, a little more than 10 percent of its pretax income.
While gettin's good
In some cases executive pay rose as corporate leaders left jobs and collected sizable awards.
James Tennant, former CEO of small housewares molder Home Products International Inc., got a severance payment of $2.8 million when his bid to buy HPI fizzled and other investors bought the Chicago company and took it private.
He also received two years' worth of medical and insurance benefits, and agreed not to compete with the company.
The retired chairman of Applied Extrusion Technologies Inc., which emerged from bankruptcy, got a sizable payment as he left the firm. Former Chairman and CEO Amin Khoury received $3.5 million as a one-time payout of his accumulated retirement funds, but he released the company from any severance claims, AET said in a filing with the Securities and Exchange Commission.
AET President David Terhune, who is CEO of the re-emerged firm, received $2.2 million as a lump-sum payout of his retirement. In accordance with AET's supplemental executive retirement plan, 40 participants in all received lump-sum distributions for their accumulated service over the past 10-15 years, Terhune said. He said including the retirement distribution funds does not fairly represent his or Khoury's earnings for 2004, but Plastics News chose to list them, like AET in its proxy, along with a footnote clarifying the listings.
Of course, it wasn't up and away for everyone. Aslaksen, who recruits executives for plastics and chemicals firms, said executives are finding less patience for not producing results.
``Boards, whether public or private, are not allowing for poor performance,'' he said. ``[Companies] that aren't lean and aren't good aren't in business.''
Some executives, like Pactiv Corp. CEO Richard Wambold and Sealed Air Corp.'s William Hickey, held steady. Both men brought home a little more than $2 million for the year.
Hickey was entitled to a larger bonus, under preset formulas, but the board withheld about $140,000 from him after looking at operating results and Hickey's progress toward meeting priorities set by the board. He received a cash bonus of $400,000.
The company's board also appeared to cast a critical eye toward bonuses for the other top executives.
``The bonuses also reflect the compensation committee's view that, although the company had achieved strong operating results for the year, it had not fully reached its principal financial goals for 2004.''
One firm that in past years has both dominated PN rankings and been criticized for excessive pay packages - Royal Group Technologies Ltd. - saw its executives drop in the rankings.
Two executives at the Canadian building products manufacturer were terminated last year, and it cost them financially.
The company showed CEO Douglas Dunsmuir and Chief Financial Officer Ron Goegan the exit, after it reported that both were involved in selling land owned by Dunsmuir and former Chairman Vic de Zen to Royal for inflated profits, and not disclosing their roles to shareholders.
As a result, Dunsmuir and Goegan had US$1.8 million and US$1.5 million in stock grants revoked, respectively, and neither received any severance payments, the company said.
Divining trends in executive pay can be tough, because each company's situation can be unique. But it's clear that 2004 was a good year for executive pay.
Thomas Waltermire, CEO of compounder PolyOne Corp., saw his total compensation more than double to $1.68 million, mainly because of a $933,000 cash bonus. He took a 10 percent pay cut in 2003, but that was restored last year. The company said it held executive salaries steady in the first half of 2004 because of difficult market conditions, but approved increases when business picked up.
PolyOne competitor A. Schulman Inc. did not increase the salary or bonus for CEO Terry Haines, but his total compensation roughly doubled, from $1 million in profit he reported from exercising stock options.
Other executives saw jumps in pay as business picked up:
* Hexcel Corp. Chairman, CEO and President David Berges topped $2 million in cash pay alone, as his annual bonus rose 80 percent to $1.3 million. In SEC filings, the company credited an ``improved financial condition, more focused strategic direction, increase in revenues and earnings, and Mr. Berges' leadership qualities and work with major customers and suppliers.''
* AptarGroup Inc. CEO Carl Siebel saw his cash bonus jump 15 percent to $575,000, and his salary rise 6 percent, as he reported compensation of $3.9 million, mainly from exercising stock options. The company said it had a strong year, with record net sales and earnings per share, as it achieved its 39th consecutive year of sales growth.
So what will executive pay look like next year?
That's hard to say. Before this year's sharp rise, pay at the top had held steady for several years, and actually dropped 11 percent in 2003.
And this year's $1.22 million average still is down from the last time pay shot up in one year, in 1997, when it hit an average of $1.48 million. Then, it was executives cashing in stock.
Some suggest continued pressure on executive wages. Korn/Ferry's Aslaksen said the market for good executives is tight, with equity investors like Blackstone Group putting pressure on pay because they're looking for those who can manage turnarounds.
``The pay issues have been exacerbated by the private equity firms,'' he said. ``They've made it very lucrative for these CEOs and CFOs, who go in and turn these companies around.''
Equilar's analysis suggests that cash will be a larger portion of pay.
Among small-cap public companies - those with less than $1 billion in annual sales - salary last year rose 8 percent, and cash bonuses were up 65 percent, while the value of stock options was down 18 percent. The value of stock grants, however, was up 25 percent.
``Historically what happens with executive pay is that when the market goes down, companies stop using stock as a way to reward executives, and they start using cash,'' said Salary.com's Coleman. ``Pay practices respond to the market.''
* * *
#16, Terry Haines
A. Schulman Inc.
* * *
#17, Richard Wambold
* * *
#18, William Hickey
Sealed Air Corp.
* * *
#25, Thomas Waltermire