Total compensation for the average executive on Plastics News' list of the highest-paid 150 executives at publicly held processors and compounders hit $1.29 million in 2006.
That's 70 percent higher than it was five years ago.
In order to reach that figure, executives in the PN ranking received compounded annual pay increases of 12 percent - which is three to four times higher than the pay increases for the American workforce.
``The gap between chief executive officer pay and worker pay continues to widen,'' said James Reda, founder and managing director of James F. Reda & Associates LLC in New York. The Congressional Research Service estimates chief executive officers are paid 179 times as much as rank-and-file workers, virtually double the 90-to-1 ratio in 1994.
``Executive compensation continues to rise at 8-10 percent annually, or more than twice the average worker increase,'' Reda said.
Still, compensation for CEOs in the plastics industry remains well below CEOs in other industries.
Mercer Human Resource Consulting LLC of New York estimates the median total compensation for CEOs at 350 large public U.S. companies was $8.2 million, while Equilar Inc., an executive compensation research firm in Redwood City, Calif., found the median pay for nearly 200 CEOS with two or more years of tenure was $8.5 million.
Only one CEO on the PN list reached that threshold: Mark Ketchum, president and CEO of Newell Rubbermaid Inc., with $8.3 million in compensation.
But CEO pay levels at the publicly traded firms on PN's list were much higher than the estimated CEO pay levels at many of the roughly 20,000 companies in the plastics industry in North America.
At a typical small or medium-size plastics company, base salaries for executives are $200,000-$300,000, said Dennis Gros, president of PlasticJobs by Gros Executive Recruiters in Brentwood, Tenn. ``[At smaller companies], you don't see the incentive packages that would give an executive multiples of four to five times his base salary,'' Gros said. ``You might see them set at 40 percent to double.''
Gros said incentive packages at typical small and medium-size companies have remained flat, even while average annual sales have risen 20 percent the past two years.
``It suggested to me that the owners do not see any significant increase in profitability on the horizon - that they see the profit opportunities as incremental,'' Gros said.
Compensation for executives on the PN list of publicly traded companies also is more heavily weighted toward cash than at companies in other industries. Median cash compensation from base salary and annual bonus in 2006 was $508,254 - up 12.8 percent from 2005. That represented 65.8 percent of total compensation - which is the opposite of the trend across business.
That trend parallels what Gros has found - that a majority of small and medium-size companies in the plastics industry put their pay packages together with short-term needs in mind.
``Owners and boards will choose an incentive - particularly for a new executive coming into the company - based on what they feel a company needs to achieve short-term, because they are usually solving an immediate problem,'' Gros said.
Despite that strong cash orientation in total compensation, the prevalence of stock options and equity awards in the plastics industry is similar to companies in other industries, said Alexander Cwirko-Godycki, a research analyst with Equilar. That is, companies are making greater use of restricted stock awards that are only granted if performance levels are achieved.
However, the amounts are lower than in other industries where the median levels run more than $3 million. According to Equilar data, the median value of new stock-option awards granted to executives in the plastics industry in 2006 was $204,300 - more than twice as high as in 2005, while the median value of stock grants was $312,834.
``There was a big increase in the rise of performance-based equity that vests only upon the achievement of performance goals,'' said Cwirko-Godycki. ``That has been gaining for the past few years in the plastics industry, but it clearly arrived this year. The value of straight stock options has dropped off.''
While compensation experts agree that trend will continue, it is not as clear where overall compensation in the plastics industry is headed. Different people offer different pictures.
``Total compensation will remain stable over the next 18-24 months,'' said Jim Aslaksen, global sector leader for performance materials in the Chicago office of Los Angeles-based Executive Compensation Advisors, a Korn/Ferry International company. Aslaksen recruits executives for the chemical, plastics and packaging industries. ``We have a couple of more years of relatively good growth.''
In addition, he said, a shortage of executives could push compensation up.
``But there will be a market adjustment at some point, and at that point, there will be a decline in total compensation as business falls off,'' he said. ``Based on what the boards have done to make compensation more in line with performance, compensation could go down 50-75 percent if business goes bad.''
Others aren't sure that will ever be the case.
``The reality is that pay has become very well-aligned with performance as companies reduce perks and severance arrangements,'' said Ron Bottano, managing director for Executive Compensation Advisors.
``But there are two trends that tend to drive pay up: the large compensation packages being offered by private equity firms and the global demand for talent,'' Bottano said. ``International firms are willing to pay a premium to find emerging talent for their global-size organizations, and that can drive compensation up.''
In addition, he said, there is pressure on executive compensation committees to pay people more to keep from losing them to private equity firms, which are ``willing to offer a lot more'' to get the right person to put in charge of an acquisition they have made.
``That puts pressure on public companies to offer retention bonuses,'' Bottano said. ``So you have macrotrends, global trends and private equity trends that will be putting short-term pressure over the next few years on executive pay packages.''
Steve Van Putten, advanced senior manager and senior director of executive compensation in the Wellesley, Mass., office of Watson Wyatt Worldwide, agreed.
``Executive compensation levels are not going to go down,'' Van Putten said. ``Boards pay people based on the realities of the labor market. Absent a huge downturn in the economy, executive compensation will continue to rise. There will just be better understanding by shareholders of what goes into the compensation-package thinking because of the new disclosure rules.''