BUSINESSWEEK ONLINE: APRIL 19, 1999 ISSUE


Executive Pay: Up, Up, and Away

Think today's outcry over sky-high compensation is new? Think again.
As Business Week's guide to 70 years of corporate paydays makes clear, controversy has been a recurring theme. The other constant: The highs keep getting higher, and the lows, well, they keep getting higher, too.

1929
Eugene G. Grace, President of Bethlehem Steel, becomes first million-dollar man at a public company. On top of his $12,000 salary, Grace pockets a $1.6 million bonus.
1929

1930
Babe Ruth makes $80,000. Asked why he made more than President Herbert Hoover, Ruth says: "I had a better year than he did."

1933
After American Tobacco pays President George Washington Hill $1.3 million, irate shareholders file first known lawsuit over pay. The Supreme Court decides that pay at public companies can be subject to judicial review.

1934
Newly created Securities & Exchange Commission rules that shareholder proposals on executive pay and other governance issues should be included in proxies and voted on at annual meetings.

1937
At Bethlehem Steel's annual meeting, investor Lewis D. Gilbert (left) calls for the retirement of Chairman Charles M. Schwab, and asks that his pay be cut from $250,000 to a $25,000 pension. Gilbert and his brother John begin long careers as corporate gadflies.

1938
Pan American Airways becomes one of the first known companies to reprice options when the stock falls from $20 to $15.

1930

1949 1
Highest-Paid Executive:
Louis B. Mayer
First V.P., Loew's Inc.
$509,6222
Dow Jones Average: 200.103
Average Worker Pay: $2,6124

1940s
The War Years

1940

1958
Highest-Paid Executive:
Arthur B. Homer
President, Bethlehem Steel
$511,2492
Dow Jones Average: 583.64
Average Worker Pay: $3,904
1950
Use of stock options as key component of executive pay mushrooms, thanks to passage of Revenue Act giving them favorable tax treatment. First Business Week survey of executive pay published. Average pay for the 47 executives cited: $217,000.

1952
Highest tax rate hits 92%, taking a big bite out of cash compensation. Pfizer introduces first stock-option program open to all employees.

1957
Only 33 public-company executives earn more than $300,000; 21 work at Bethlehem Steel or General Motors.

1959
Elizabeth Taylor earns $1 million for Cleopatra.

1950

1964
Government tightens rules on stock options. Now executives must hold stock at least three years after exercising to win the best tax rate.

1968
Highest-Paid Executive:
James M. Roche
Chairman, General Motors
$795,0002
Dow Jones Average: 943.75
Average Worker Pay: $5,602
1969
Options fall out of favor for the next decade. The culprits: tax reforms, inflation, and a bear market. Presidential pay doubles to $200,000, where it remains.

1960

1970
Mary Welles Lawrence, president of ad agency Welles, Rich, Greene, earns $355,000, becoming one of the highest-paid women executives.

1971
CBS adopts first performance share plan. Such plans become wildly popular at a time when many options grants are worthless.

1974
Receiving one of the first known "megagrants," Gulf Oil Chairman B. R. Dorsey gets 200,000 options in a single year. When the market slumps later that year, Dorsey's options are repriced. Revlon pays Michel C. Bergerac a $1.5 million bonus to get him to leave International Telephone & Telegraph.

1975
In first formal plan to boost directors' ownership, IC Industries gives each board member 100 shares.

1978
Highest-Paid Executive:
David Mahoney
Chairman, Norton Simon
$2 million
Dow Jones Average: 805.01
Average Worker Pay: $10,592
1978
Of Business Week's Top 25 best-paid executives, three work at GM. two decades after dominating the list, no Bethlehem Steel executives appear.
Marlon Brando makes $3 million for 20 minutes onscreen in Superman.

1979
For the first time ever, all 25 executives on Business Week's best-paid list earn over $1 million.
With Chrysler on the verge of bankruptcy, Chairman Lee A. Iacocca takes a $1 salary for 12 months. But don't cry for Lee: by the time he retires in 1992, Iacocca has earned over $90 million.

1970

1988
Highest-Paid Executive:
Michael Eisner
CEO, Walt Disney
$40.1 million
Dow Jones Average: 2168.60
Average Worker Pay: $16,745

1982
The resurgent bull market lets Federal Express' Frederick W. Smith cash in options worth $51.1 million--the biggest single payout yet recorded.

1983
Forget about salaries: Options and other long-term plans now make up the biggest part of executive pay. For the first time, none of the 25 executives on Business Week's best-paid list make it on salary and bonus alone.

1988
Norwest puts in place first reload option plan.

1989
Director Steven Spielberg makes an estimated $50 million.

1980

1990
Time Warner CEO Steven J. Ross takes home a record $78.2 million in total pay. H. J. Heinz CEO Anthony O'Reilly gets an option grant of 4 million shares--among the largest yet.

1991
Roberto Goizueta, CEO of Coca-Cola, is awarded a 1 million-share grant of restricted stock then worth $56 million. By the time he dies in 1997, his total compensation hits an estimated $1.3 billion.

1992
Highest-paid Japanese CEO earns roughly $6.3 million. Highest-paid American CEO, Thomas Frist of Hospital Corp. of America, earns $127 million.
Primerica CEO Sandy Weill's 1986 options grant of 3.6 million shares begins to pay out big, thanks partly to its controversial reload feature. His $67.6 million places Weill No. 2 on Business Week's list. He'll be in the top 10 every year through 1998, with pay totaling $690 million.

1993
Seeking to limit CEO pay, President Clinton pushes Congress to put a $1 million cap on the tax deductibility of salaries. The unintended result: Many CEO salaries rise to just under $1 million as options and other non-salary items explode.

1995
AT&T Chairman Robert Allen comes under fire for receiving a stock-option grant worth $10 million even as the phone giant announces plans to cut 40,000 jobs.

1996
Average total compensation for large- company CEOs hits $5.8 million, up 54% from 1995.

1997
Nearly half of the 200 largest companies award top executives options megagrants worth at least $10 million.
1998 6
Highest-Paid Executive:
Michael Eisner
CEO, Walt Disney.
$575.6 million
Dow Jones Average: 9181.43
Average Worker Pay: $22,976


1998
Bethlehem Steel CEO Curtis H. Barnette makes $2.2 million in 1998--nowhere near enough to make Business Week's best-paid list.

1999 7
Charles B. Wang, CEO of Computer Associates International, gets the largest public-company bonanza ever. He rakes in stock worth $670 million when the shares meet price targets set in 1995. Computer Associates takes a $675 million after-tax charge for $1.1 billion in payouts to Wang and other top execs.

1990

Tricks of the Trade
A Poor Man's Guide to Executive Pay
STOCK OPTION: The right to buy a share of stock at a predetermined price. Options have no accounting cost on a company's income statement.

INDEXED OPTIONS: Options that vest only if the company's stock outperforms an index such as the S&P 500. Unlike normal options, their costs must be charged to earnings.

MEGAGRANT: A large number of options granted at one time. Currently, a grant worth at least $10 million qualifies.

PREMIUM PRICED OPTION: An option granted at an above-market price.

PERFORMANCE SHARE OR UNIT PLAN: Long-term pay plans in which execs earn shares or cash equivalents of shares for achieving goals over a certain period.

PERFORMANCE VESTING OPTION: An option that has no value unless certain criteria are met, such as earnings or stock appreciation goals.

RELOAD OR RESTORATION OPTION: A feature that allows an executive to exercise options for shares that generally cannot be sold. In return, the executive receives a new option grant equal in dollar value to that of the exercised options, although generally for fewer shares. Intended to increase total equity ownership by executives.

REPRICING: The cancellation of an option grant because the stock has fallen below the grant price--making it worthless--while simultaneously reissuing the option at a new, lower price.

RESTRICTED STOCK: Stock grant with restrictions, usually the length of time held before vesting.

SHADOW OR PHANTOM GRANT: Any cash bonus that mirrors the appreciation of a stock or an option.

Glossary

1. 1948 DATA NOT AVAILABLE. 2. NO INFORMATION AVAILABLE ON EXERCISED OPTIONS. 3. ALL DJIA NUMBERS ARE CLOSING PRICES FOR LAST DAY OF THE YEAR. 4. ALL WORKER PAY NUMBERS ARE BASED ON ANNUALIZED AVERAGE WEEKLY EARNINGS OF PRODUCTION WORKERS FROM THE BUREAU OF LABOR STATISTICS. 5. ACCORDING TO CHRYSLER LEGAL DOCUMENTS. 6. OPTIONS EXERCISED IN DECEMBER 1997, AS REPORTED IN DISNEY'S FISCAL 1998. 7. PAID IN JULY 1998, AS REPORTED IN COMPUTER ASSOCIATES' FISCAL 1999.
 
CREDITS: GRAPHICS BY JONI DANAHER, DAVID RUDES, DENISE EDKINS, RAY VELLA, JOE CALVIELLO; RESEARCH BY JENNIFER REINGOLD, ROBERT ROEKER; PHOTOGRAPHS BY CORBIS/BETTMANN-UPI, JONATHAN LEVINE/GAMMA-LIAISON, JEFFREY KREIN, SHONNA VALESKA, CORBIS/BETTMANN-UPI, CORBIS/BETTMANN, ARCHIVE PHOTOS, CORBIS/BETTMANN-UPI, ANTHONY EDGEWORTH, CORBIS/BETTMAN-UPI, AL GRILLO/SABA, PORTER GIFFORD/GAMMA-LIAISON, ANN STATES/SABA, DENNIS BRACK/BLACK STAR, DANUTA OTFINOWSKI, PORTER GIFFORD/GAMMA-LIAISON
 
DATA: BLOOMBERG FINANCIAL MARKETS, BUSINESS WEEK, FREDERIC W. COOK & CO., GRAEF CRYSTAL, BRUCE ELLIG, BUREAU OF LABOR STATISTICS, DIRECTORS AND BOARDS, DIVIDENDS AND DEMOCRACY, HARVARD BUSINESS REVIEW, THE NEW YORK TIMES, PEARL MEYER & PARTNERS, SIBSON & CO.





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