CEOs Profit Regardless of Company's Situation

06/23/02
By: Joe Guy Collier, The State Newspaper

Many of South Carolina's publicly traded companies recorded lower sales and profits in 2001, but that didn't keep a few chief executive officers from cashing in.

Executive pay compared with company performance has become an issue nationwide, with investors and federal regulators demanding answers.

According to a New York Times-sponsored survey, half of CEOs at the 200 largest U.S. companies received pay raises last year. Profits at those companies fell an average of 35 percent.

Executive compensation at most of South Carolina's top 50 publicly traded firms in 2001 tracked the company's performance.

Twenty-nine executives received pay raises last year. Twenty-one of the companies they lead either increased profits or trimmed losses.

Executives at a few companies were paid well even as their firms languished financially.
Bradley Blair, chief executive officer of Charleston-based Golf Trust of America, made $3.8 million last year, more than six times his pay in 2000.

Golf Trust, meanwhile, is in the midst of selling its golf courses and going out of business.

Spartanburg-based Advantica Restaurant Group, the financially troubled parent of Denny's, paid hefty salaries to two chief executives in 2001. Its stock price was below $1 per share for most of the year.

James Adamson, the outgoing chief executive, was paid $2.4 million. Adamson, now head of retailer Kmart, stepped down as Advantica's chief executive in January of 2001.

Adamson's successor, Nelson J. Marchioli, was paid $2.3 million for the year.

Efforts to reach Golf Trust of America officials were unsuccessful.

Advantica spokesman Debbie Atkins said the executive compensation committee of its board of directors tries to pay executives salaries comparable to others in its industry.

In its SEC filing, an independent consultant said Advantica's pay was in line with, or even below, the pay of other restaurant groups.

Advantica's stock price has remained low, but Atkins said a company's stock price isn't the only appropriate measure for setting pay.

"You can't just look at the stock price," Atkins said. "It's the size of the company as well, and we are a $1 billion company in terms of sales."

Executive pay at most publicly traded firms, though, has gotten out of hand, said Charles Elson, director of the University of Delaware's Center for Corporate Governance.

The issue is attracting attention following recent scandals at companies such as Enron, WorldCom, Adelphia and Tyco, Elson said. Executives at these companies made millions of dollars while their firms were headed for financial difficulties.

Top-level compensation at public companies is set by the board of directors. But the board is often hand-picked by the chief executive, Elson said. The executives usually get an attractive deal, he said.

"They seem to take a good chunk of the upside but don't get hurt by the downside," Elson said.

As a result, stockholders are losing confidence in corporate management, he said.

"I think the issue is about to come to a head," Elson said. "If you're going to restore confidence, you're going to have to create pay packages that truly relate to performance."

Dieter Waizenegger, a research analyst with the AFL-CIO, said 2001 provided strong proof that executive pay is out of line.

The AFL-CIO, a federation of labor unions, has followed executive pay for the past six years and doesn't like what it sees.

"[Executives] are getting huge paychecks while shareholders and workers are left holding the bag," Waizenegger said.

While excesses exist, hefty salaries aren't always the product of irresponsible corporate boards, said Dan Moynihan, a principal with New Jersey-based Compensation Resources Inc., a consulting firm that helps companies structure pay packages.

The top position at a company carries a great deal of pressure, he said. The tenure of a chief executive also is short, usually three or four years, Moynihan said.

Experienced executives often demand up-front guarantees before they'll take the job, he said.

"CEOs are kind of like professional athletes," Moynihan said. "They have a limited window of opportunity. They want to make the most of their time at the top."

The salaries of executives should track the performance of the company, he said.

If a company has a good year, the chief executive should be rewarded, Moynihan said. If the company has a bad year, they should receive no bonus, he said.

"The executive should know that when they get a big bonus one year, they have to put some of it in the bank for a rainy day," Moynihan said.

Last year, Moynihan said he saw more executives who were left without a bonus or gains on their stock options.

In the next few years, executive pay is likely to become even more balanced, he said.

"Every day you open the paper and read about another ongoing SEC audit," Moynihan said. "It's going to have a profound impact on executive compensation and corporate governance."