| BUSINESSWEEK ONLINE : APRIL 19, 1999 ISSUE | ||||||||
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| COVER STORY
Who Earned the Pay--and Who Didn't America's spending spree with plastic continues, but credit-card issuer Capital One Financial Corp. (COF) is downright tightfisted with its own chief executive's pay. In the past three years, Richard D. Fairbank has pulled in a total of $1.3 million--mere pocket change among Corporate America's potentates. And last year he took no pay, period. That's not all: Since 1996, he has exercised none of his 3.2 million options. Those skinflint ways made Fairbank one of the two top finishers in the pay-for-performance derby, according to a BUSINESS WEEK analysis. Compare Fairbank's piddling pay with the stock's 393% total return--price appreciation plus dividends--and he did the best. WRESTLING. No wonder Capital One pleases Wall Street. Fairbank, who couldn't be reached for comment, has almost doubled its earnings in three years, to $275 million in 1998. It has been successful at identifying customer niches, offering 6,000 different kinds of cards--for groups from horseback riders to wrestling fans. The key to making this work is Capital One's ability to cull prospects likely to default on payments. By another measure, matching a CEO's pay to return on equity--a key profitability indicator--the leader is Dane A. Miller of Biomet Inc. (BMET). This orthopedic-equipment maker has become a powerhouse in artificial replacements for hips, knees, and shoulder joints, expanding through acquisitions. ROE since 1996 has averaged a healthy 18.7% per year. Factor in Miller's tiny 1996-98 pay of $992,000, and it's clear why he heads our roster. ''I don't feel underpaid,'' he says. Ah, but then there's the bottom of the list. Comparing shareholder returns with pay, stockholders fared the worst with Walt Disney Co.'s Michael D. Eisner. For 1996-98, he hauled down a mind-blowing $595 million, some $570 million from exercising stock options. True, the 56% stock run-up during the period isn't shabby: It beats the Standard & Poor's 500-stock index, which rose 43%. Yet was it enough to justify more than a half-billion dollars? The company contends he's well worth it. Disney board member Ray Watson says the fat options are warranted since Eisner has been the catalyst of Disney's (DIS) long-term growth. IN A SWOON. But the storied Disney growth engine has sputtered lately because of its sagging ABC network and high movie-production costs. Earnings dipped 13% in calendar 1998, as did the shares, dropping 12 from their May high to end at 30. The other underperformer--at least by ROE--is Amazon.com Inc.'s Jeffrey P. Bezos, who delivered the worst ROE relative to his pay. Although Bezos, who owns 36% of the company, earned just a measly $225,000 from 1996 to '98, negative ROE did him in. But don't expect him--or his investors--to care. The hotshot on-line bookseller epitomizes the red-hot Internet economy, in which earnings don't seem to matter. Indeed, Amazon (AMZN) has never been profitable and is in no hurry to be so, arguing that it's sacrificing earnings for growth. Faith in its E-commerce future is enough, as Amazon's gravity-defying stock shows. Investors who hold the remaining 64% of Amazon clearly agree. From the mid-1997 stock offering through 1998, their holdings gained $10.7 billion in value. So unlike some of his underperforming brethren, Bezos is a hero. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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