Pay Check
Does Michael Dell’s salary compute? Is Dick Cheney’s bonus defensible? Are Herb Kelleher’s stock options on course? We analyze the earnings of twenty Texas CEOs: Who’s underpaid, who’s overpaid, and who’s on the money?
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WHAT IS IT WITH THESE AIRLINE guys? They must be surveying one another and ignoring what passes for decent compensation in other industries. AMR’s Crandall was low to the ground in terms of pay, as is Continental’s Bethune, but Kelleher beats them both. His salary puts him 46 percent below the market. The combination of his salary and bonus puts him 67 percent below. And his total pay is—are you ready for this?—90 percent below. He is paid so little that his passengers ought to pass the hat for him at the end of every flight. Southwest’s performance in earlier years suffered along with the rest of the industry, but in 1997 it was exemplary. Kelleher delivered total shareholder returns of 68.2 percent, more than double the 33.4 percent performance of the S&P 500.
CONCLUSION — WORTH IT BIG TIME.
Kenneth L. Lay
Enron — Houston
Base salary $1,200,000
Salary plus bonus $1,675,000
Total compensation $13,701,000
LAY’S SHAREHOLDER RETURN performance during the three-, two-, and one-year time periods is in the same league as that of EDS’s Alberthal, and in case you missed the point, that’s not a good thing. In 1997, for example, Lay delivered a return of negative 1.4 percent versus 33.4 percent for the S&P 500—yet his ultralarge option grants catapulted him to a total pay package that was 65 percent above the market. During Lay’s long tenure as CEO, which stretches back to November 1985, Enron’s shareholder return was not much different from what an investor could have received by putting his funds in the S&P 500. And during at least some periods, Lay actually delivered superior returns. But starting in early 1992, Enron’s returns began to slip below the overall market, and more recently they’ve slipped badly. Meanwhile, Lay’s pay package has been growing and growing. (In fairness, Enron’s shareholder returns for the first seven months of 1998 surpassed the S&P 500—a possibly hopeful sign, although seven months is an extremely short period.)
CONCLUSION — NOT WORTH IT BIG TIME.
Bill M. Lindig
Sysco — Houston
Base salary $660,000
Salary plus bonus $1,221,000
Total compensation: $1,913,000
THE FINDING HERE IS LOW pay and low performance. Lindig, who got his job in January 1995, earned 22 percent less in base salary in the company’s 1997 fiscal year (which ended June 30, 1997), 32 percent less in salary and bonus, and 72 percent less in total compensation. But between December 31, 1994, and June 30, 1997, he delivered shareholder returns of only 47.6 percent, less than half the 103.9 percent return of the S&P 500 during that period. However, he seems to have found the “go” button on his desk, because between June 30, 1997, and July 31, 1998, he slightly outperformed the S&P 500.
CONCLUSION — WORTH IT.
John Mackey
Whole Foods Market — Austin
Base salary $170,000
Salary plus bonus $263,000
Total compensation $322,000
IF HOUSTON INDUSTRIES’ Don Jordan is, relatively speaking, the most overpaid CEO featured in this article, Mackey is the most underpaid. His pitifully low salary is 66 percent below the market, and his salary and bonus is 78 percent below the market. Worse, he gets stock options that are so teeny-weeny that his total pay is 92 percent below the market. That much money wouldn’t buy Michael Dell for more than a few days. Of course, Mackey is no Dell when it comes to performance, though he isn’t any slouch either. On a scale of 0 to 100, his shareholder return during the three-, two-, and one-year time periods rated 58, 93, and 61, respectively.
CONCLUSION WORTH IT BIG TIME. A GREAT BUY.
L. Lowry Mays
Clear Channel Communications — San Antonio
Base salary $726,000
Salary plus bonus $2,726,000
Total compensation $3,649,000
HIS SHAREHOLDER RETURN in three-, two-, and one-year time periods rated 99, 99, and 97, respectively. You really can’t top that. Although his cash compensation positioned him 54 percent above the market, his total pay left him under the market by 51 percent, principally because his stock-option grants were puny.
CONCLUSION WORTH IT BIG TIME.
Erle Nye
Texas Utilities — Dallas
Base salary $760,000
Salary plus bonus $1,085,000
Total compensation $1,753,000
WHEN IT COMES TO DETERMINING how competitive its CEO’s pay is, I’d wager that Houston Industries has never bothered to call up Texas Utilities to find out how much Nye is being paid. The answer would be “not much.” Nye’s total pay puts him 38 percent below the market. However, though he earns far less than Don Jordan, his performance is also substantially lower. During the three-, two-, and one-year time periods, his shareholder return rated 19, 15, and 19, respectively.
CONCLUSION — WORTH IT. AGAIN, YOU GET WHAT YOU PAY FOR.
Eckhard Pfeiffer
Compaq — Houston
Base salary $1,250,000
Salary plus bonus $4,500,000
Total compensation $30,220,000
AN EXCELLENT PERFORMER, Pfeiffer’s total shareholder return has been fine and getting even finer. In the three-, two-, and one-year time periods, Compaq rated 83, 95, and 90, respectively. But his pay is a thing of wonder. His salary is 19 percent above the market, his salary and bonus is 34 percent above, and his total pay is 88 percent above, the latter figure a result of stock-option grants with an estimated present value of $24.2 million. What’s going on here is obvious: Compaq’s board has looked at the return numbers and rewarded Pfeiffer with a ton of compensation. Most companies don’t pay for performance these days, but that doesn’t mean it’s wrong when one does.
CONCLUSION WORTH IT. BUT NOW THAT PFEIFFER HAS REACHED CRUISING ALTITUDE, IT WOULD BE NICE TO SEE HIS BOARD EASE UP ON THE THROTTLE.
Bruce E. Ranck
Browning-Ferris Industries — Houston
Base salary $600,000
Salary plus bonus $727,000
Total compensation $1,205,000
HE GOT HIS JOB IN OCTOBER 1995, and during the two years ending September 30, 1997 (the end of BFI’s most recent full fiscal year for which data are available), he delivered total shareholder returns of 31.2 percent versus 69 percent for the S&P 500. No matter how you slice it, that’s underperformance. But he seems to be a quick study, for in the one-year period ending September 30, 1997, he outperformed the S&P 500 by 55.7 percent to 40.4 percent. Meanwhile, his salary is 26 percent below the market, his salary and bonus combined is 57 percent below the market, and his total pay is 81 percent below.
CONCLUSION — WORTH IT.
Lee R. Raymond
Exxon — Irving
Base salary $1,750,000
Salary plus bonus $3,250,000
Total compensation $18,182,000
HIS PERFORMANCE HAS BEEN blah but so has his pay. During the three-, two-, and one-year time periods, Exxon’s total shareholder returns rated 47, 48, and 42, respectively. Yet Raymond’s total pay is also just below average—12 percent below, to be exact. How can someone earning $18.2 million ever be considered even a little bit underpaid? You have to remember that the number one factor driving CEO pay is company size, and Exxon is the biggest thing going. By all rights, he could be making even more.
CONCLUSION — WORTH IT.
Robert L. Waltrip
Service Corporation International — Houston
Base salary $879,000
Salary plus bonus $3,212,000
Total compensation $20,346,000
IF ANYONE SHOULD KNOW that you can’t take it with you, it’s Waltrip, who runs the largest assemblage of funeral homes in the country. Yet his total pay in 1997 put him 192 percent over the market for a company of SCI’s size and performance. Speaking of performance, Waltrip has been a bit, well, moribund: His shareholder return rates a solid 63 in the three-year period, but it slips in the two-year period to 52 and in the one-year period to 46. For this kind of pay, he has to do better than that.
CONCLUSION — NOT WORTH IT.
Edward E. Whitacre, Jr.
SBC Communications San Antonio
Base salary $975,000
Salary plus bonus $4,275,000
Total compensation $21,619,000
IN AMERICA, IF YOU RUN A company with huge revenues, and better yet, with huge and growing revenues, you get to earn a ton of money, even if you aren’t the best of performers. I’ve mentioned that the Baby Bells, though highly regulated, do not extract any pay sacrifices from their CEOs. And here comes Whitacre to prove my point: In 1997 he hauled away a total pay package that puts him 74 percent above the market. But during the three-year and two-year periods ending December 31, 1997, Whitacre’s shareholder returns rated only 37 and 29, respectively, though he moved to an above-median 61 for the one-year period.
CONCLUSION NOT WORTH IT. UNLESS, THAT IS, BIG, GROWING REVENUES MATTER MORE TO YOU THAN SHAREHOLDER RETURNS.
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