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Multimillion-Dollar Pay Salaries for CEOs Are Made Up of Base Pay, Bonuses for Performance, Stock Options and Other Compensation
05/19/02
By: Travis E. Poling, San Antonio Express-News
It took a major merger and a golden parachute to land the CEOs of two San Antonio refining companies in the same payday neighborhood as the head of San Antonio's biggest public company.
Jean Gaulin, the CEO of Ultramar Diamond Shamrock Inc. until it was taken over by Valero Energy Corp. on Dec. 31, left the company with $39 million in his pockets. He tops the list of San Antonio's highest paid public company chiefs in 2001.
Valero CEO Bill Greehey, who got a $5 million bonus for completing the deal with UDS, also presided over a year of strong earnings, helping boost his total compensation package to $16.4 million.
But Edward E. Whitacre Jr. of telecom giant SBC Communications Inc. still ranked among the highest paid executives, garnering a total of $25 million in compensation from salary, bonus, profits from exercising stock options, retention payments and other incentives.
In all, the CEOs of San Antonio's 28 publicly traded companies took home combined paychecks of $104 million in 2001, up from $74.5 million from the previous year. Gaulin's buyout compensation accounted for 37 percent of the total, while the top five best-paid CEOs in the city took home 86 percent of the spoils.
In only three cases did base salaries exceed $1 million, with most of the payday coming from performance incentives, following a national trend that each year puts more burden on the CEO to deliver the goods.
"Cash may still be king, but stock is the viceroy prince and a few other things combined," said Paul Dorf, managing director of Compensation Resources Inc. of New Jersey.
A Compensation Resources study of data on San Antonio's public and private firms found that CEOs of companies with more than $250 million in revenue received an average base salary of $411,000, as well as $725,000 in other compensation.
CEOs of San Antonio firms with $500 million or more in annual revenue received an average of $489,000 and incentive-based compensation of about $912,000.
Gaulin's 2001 pay was an anomaly because it was tied to a buyout clause that rewards executives handsomely when the company is acquired. The payout included money equal to three times his highest salary from the previous three years; a cashing in of his stock options (made richer by the acquisition); and cashing out a $10.3 million retirement plan accumulated over 30 years with UDS.
That's very common, Dorf said, because departing executives don't want to take the chance that the money won't be there in the future, as with Enron.
Gaulin, who maintains an office in San Antonio, called his payout on leaving the company "generous, but not abnormal."
The stock options for Gaulin, which netted about $13 million, had been accumulating since 1992, when he took Ultramar Corp. public. Gaulin said he never sold any of his options and the value of the stock increased about 15 percent a year for 10 years, including the premium Valero paid for the merged Ultramar and Diamond Shamrock.
"When I was (in my 30s) I didn't realize I was going to be so lucky," Gaulin said.
The pay earned by executives at many San Antonio companies shows that incentive-based pay works. There was falling pay for those whose companies got pounded in a brutal economy, while those who steered the corporate ship to strong profit got higher payouts.
The $25 million earned by SBC's Whitacre represents a decrease of 34 percent from 2000, when revenue was $6 billion higher and profit was $700 million more.
Whitacre's bonus, an SBC spokesman pointed out earlier this year, dropped to reflect the change in performance. But Whitacre made up for the lack of bonus with a "special performance and retention award" of $10.5 million for achievements from 1996 through 1999, a period of steady growth for SBC.
Valero's Greehey was rewarded with a fat bonus and incentives for nearly doubling the size of his company and positioning it to take advantage for what was a record year for the company and the oil refining industry.
"That's the way it should be. When you do well, you should get paid for it," Greehey said. "We'll get killed this year unless the stock prices go up."
On the other side of the equation, Clear Channel Communications Inc.'s CEO, Lowry Mays, fell from his usually lofty position among the best compensated CEOs in San Antonio because of an anemic advertising market in 2001. That meant Clear Channel's radio, TV and outdoor advertising units had a tougher time making money.
Mays drew a salary of just over a $1 million and other standard executive perks of about $160,000 - no bonus, no stock option exercise. In 2000, the Clear Channel founder made about $4.2 million in salary and bonus. In 1999, when Mays exercised valuable stock options, his total compensation was $33 million.
"I'd say that board and that compensation committee (at Clear Channel) should be congratulated," Dorf said. Many companies lower the bar when times are bad, he said, allowing CEOs to get big money for less performance.
Institutional investors are starting to put more pressure on boards to be more responsible when it comes to rewarding executives. In the last six year, Dorf said, that pressure has resulted in 75 percent to 80 percent of pay packages for CEOs coming from targeted incentives.
But for the rank and file, who are more used to small to moderate raises in good times and salary freezes and layoffs when the going gets tough, the pay gap between the top and the bottom is hard to fathom.
The labor organization AFL-CIO reports that median pay for CEOs grew by 7 percent, while profit declined an average 35 percent and the Standard & Poor's 500 index fell 13 percent.
According to the Wall Street Journal/William M. Mercer CEO Compensation Survey, CEO salaries were up slightly at the nation's 350 largest companies, but reduced bonuses dropped average compensation by 2.8 percent.
Before the economic boom began in 1990, the average CEO made 85 times an average hourly worker's pay. By 2000, AFL-CIO's Executive PayWatch reports, the CEO made about 531 times the hourly worker's pay.
But after 2001, what's got the union organization most steamed is that top executives have insulated themselves against economic hardship while the rank-and-file lose jobs with minimal severance pay.
A standard severance package for a non-management worker is an amount equal to two weeks' pay, while the standard "golden parachute" for axed top executives is equal to three times annual salary.
tpoling@express-news.com
Caption:
$39,200,000
Jean Gaulin
Ultramar Diamond Shamrock Corp.
$25,048,376
Ed Whitacre Jr.
SBC Communications Inc.
$6,062,486
Bruce A. Smith
Tesoro Petroleum Corp.
$3,299,863
Larry Franklin
Harte- Hanks Inc.
$16,432,250
William Greehey
Valero Energy Corp.
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