Aside from stock incentive plans, salaries and bonuses level off

  • Article by: JOHN J. OSLUND and PATRICK KENNEDY , Star Tribune
  • Updated: May 8, 1999 - 11:00 PM

Executive compensation, which at one time thrived on a diet of fat salaries and even fatter bonuses, appears to be watching its calories more carefully these days.

CEO salaries, though high by worker standards, have flattened in the past two years. Cash bonuses, too, have moderated.

But when it comes to stock options -- the CEO's dessert, so to speak -- all restraint seems abandoned. Even plain-vanilla stock options can provide crème brûlee returns in a bull market.

And so they have.

Average total compensation for the 100 highest-paid executives in the Star Tribune's annual compensation survey jumped 30 percent to $2.46 million in 1998. But that figure is distorted by huge stock gains made by a few executives at the top of the list.

In this year's survey, just 46 of the 100 chief executives exercised stock options, for a total gain of $135 million. But the four largest exercisers -- William George of Medtronic, William McGuire of UnitedHealth Group, John Dasburg of Northwest Airlines and John Grundhofer of U.S. Bancorp -- accounted for $71.7 million of the gains, or more than half the total.

(Because options typically vest over several years, stock option gains in a given year may not reflect the company's performance for that year.)

Meanwhile, median total compensation for the 100 highest-paid executives in 1998 was $775,000, down about 21 percent from $986,000 in 1997. In other words, half the executives got more than $775,000 last year and half got less.

While both averages and medians are useful, analysts use median figures when discussing income data to locate the midpoint and also to avoid the skewing of averages that occurs with a few large numbers.

When the CEO pay package is broken down into salary, bonus and other compensation (including stock gains and other long-term compensation), the picture takes on a sharper focus.

  •   Median salaries for the 100 highest-paid executives in the past three years have been flat. In 1998, the figure was $350,000, down from $353,000 in 1997 and $351,000 on our 1996 list.

  •   Median cash bonuses declined about 8.3 percent to $170,000 last year from $185,500 in 1997 and $187,000 in 1996. Of the 100 executives, 22 received no bonus in 1998, up from 15 in 1997.

  •   Median other compensation, which includes stock option gains, has soared to $198,000 from $160,000 in 1997 (a 23 percent jump) and $102,000 in 1996.

    Because the population of executives changes somewhat as CEOs arrive and depart the list, exact comparisons are difficult. But trends identified from the Minnesota list are similar to those found here and elsewhere.

    The decline in bonus awards, for example, appears consistent with the relatively weak earnings gains by most companies last year.

    For example, the Star Tribune 100 list of the state's largest public companies, ranked by revenues, showed earnings down 14.3 percent in 1998 from 1997. Median bonuses for the 100 highest-paid executives, which represent a similar, but not identical, group of companies were down 8.3 percent.

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