Executive Compensation
Amy Sachs
Kellie MacMullan
Meagan Mucciarone
Paul Haines
Highest Paid CEO’s
Year
CEO, Company
Compensation
1990
Steven Ross, Time
Warner
$75,000,000
1991
Roberto Goizueta, CocaCola
$61,000,000
1992
Alan Greenberg, Bear
Stearns
$16,000,000
1993
George Fisher, Eastman
Kodak
$29,000,000
1994
Lawrence Coss, Allied
Signal
$34,000,000
1995
Lawrence Coss, Green
Tree Financial
$66,000,000
1996
Michael Eisner, Walt
Disney
$194,000,000
1997
Henry Silverman,
Cedant
$194,000,000
1998
Michael Dell, Dell
Compter
$94,000,000
1999
Charles Wang,
Computer Associates
$507,000,000
2000
Steven Jobs, Apple
Computer
$381,000,000
Definition

Governance mechanism that seeks to align
the interests of managers and owners
through salaries, bonuses, and long term
incentive compensation, such as stock
options.
Strategic Management: Competitiveness and Globalization
Executive Compensation

Looking at:
 Pay
 Bonuses
 Performance
 Company makeup
 Stage Stores: Company and CEO
Interview with CEO

Jim Scarborough, President, CEO,
and Chairman of the Board—Stage
Stores, Inc
Stage Stores
 Stage
Stores, Inc
– Retail Industry
– 3 Department Stores: Bealls, Palais
Royal, Stage
– “Think Big in Small Town America”
– Headquarters in Houston, TX
– 362 Stores, mainly South Central
– Over $1 Billion/year
Jim Scarborough



CEO, President and
Chairmen of Stage Stores
for over 3 years
53 years old
Previously CEO at:
– BusyBody-Fitness
equipment
– Seattle Lighting-Lighting
Fixture
Executive Compensation Basics

Executives-Who are they?

Key Employees in company
 CEO,
CFO, COO
 President, VPs, Directors
What is Executive Compensation?

Core Compensation= Base Pay & Bonus

Less than $1,000,000 due to tax implications

Short term Incentives

Stock Options

Fringe Compensation
Issues With Compensation
Packages


If CEO holds over 1% of stock, hard to fire
Bonuses often cause oversight of long
term goals
Jim Scarborough’s Compensation
Package
Pay, bonuses
 Long-term

– Company matches, defers income
Stock options
 Car Allowance
 Extra Discount
 Life Insurance
 100% paid medical plans

– No deductible or premium
Who Sets Executive Comp?





Different for Each Company
Compensation Consultants
Compensation Committees
Board of Directors
Shareholders
Board of Directors

Is it fair for Board of Directors to
determine salary?


“Boards are often quite friendly with the CEOs
and find it hard to impose large decreases in
compensation on their friends”
Boards should usually be made of outsiders to
avoid much conflict
Executive Compensation and Shareholder Value
How Stage Does It
 Compensation
Committee
– Info from Hay Associates & Hewitt
Associates
– Pay grades
 Philosophy:
 Brought
to pay at 75th percentile
to Board for Ratification
Let’s Look at Salaries…

Are CEOs paid based on performance?

Are CEOs paid based on industry?

Are CEOs paid based on company size?
Comparing Industry Salaries


Retail Industry
 GAP
 NORDSTROM
 STAGE STORES
Financial Service Industry
 MERRILL LYNCH
 JP MORGAN CHASE
 JANUS MUTUAL FUNDS
GAP INC
TWO FOLSOM STREET
SAN FRANCISCO, CA
(415) 952-4400
Executive Comp Summary
Paul S. Pressler
President and CEO of the
Company
2002
$535,045
$885,000
$1,420,045
Gary Muto
President, Gap U.S. Division
2002
$770,620
$1,045,385
$1,816,005
Jenny J. Ming
President, Old Navy Division
2002
$952,109
$1,291,077
$2,243,186
Kenneth S. Pilot
President, Gap International
Division
2001
$648,670
$0
$648,670
NORDSTROM INC
1617 SIXTH AVENUE
SUITE 500
SEATTLE, WA
(206) 628-2111
Executive Comp Summary
John J. Whitacre
Former Chairman of the Board and CEO
2000
$433,333
$0
$433,333
Robert J. Middlemas
EVP
1999
$255,000
$194,116
$449,116
Blake W. Nordstrom
President
2001
$580,000
$0
$580,000
STAGE STORES INC
10201 MAIN ST
5847 SAN FELIPE ST STE 2600
HOUSTON, TX
(713) 667-5601
Executive Comp Summary
James Scarborough
Chairman, CEO and
President
2001
$720,192
$1,875,000
$2,595,192
Vivian Baker
EVP, General Merchandise
Manager
2001
$314,615
$704,000
$1,018,615
Michael E. McCreery
EVP and CFO
2001
$338,558
$770,000
$1,108,558
Ron Lucas
EVP of Human Resources
2001
$266,154
$605,000
$871,154
MERRILL LYNCH & CO INC
4 WORLD FINANCIAL CTR
NEW YORK, NY
(212) 449-1000
Executive Comp Summary
David H. Komansky
Chairman of the Board
2002
$700,000
$7,000,000
$7,700,000
E. Stanley O'Neal
CEO
2002
$500,000
$7,150,000
$7,650,000
John L. Steffens
Vice Chairman
1999
$400,000
$5,765,000
$6,165,000
J P MORGAN CHASE & CO
270 PARK AVE
39TH FL
NEW YORK, NY
(212) 270-6000
Executive Comp Summary
Douglas A. Warner
Chairman of the Board
2000
$700,000
$13,700,000
$14,400,000
William B. Harrison
Chairman and CEO
2001
$1,000,000
$10,000,000
$11,000,000
JANUS CAPITAL GROUP INC
100 FILLMORE STREET
DENVER, CO
(303) 333-3863
Executive Comp Summary
Landon H. Rowland
Chairman of the Board, President and CEO
2002
$825,000
$0
$825,000
Thomas H. Bailey
Chairman, President and CEO of JCC
2002
$486,779
$0
$486,779
As You Can See…


Within each industry:
Size of company does not reflect salaries
of CEOs
Difference between industries:
Industries reflect a large pay difference to
CEOs
What Do You Think:
Should company size or industry
type determine pay?
Does Salary=High Performance?
Company
JP Morgan
Change in
Stock Price
-$10/Share
Salary
Changes
Gap
No Change
$.5 Million raise in
bonus
Merrill Lynch
-$5/Share
Bonus
$10
million bonus for
merger
No performance
bonus
up from $1
million to $7 Million
Cut 28.9% jobs
CEO Compensation




Citigroup Share price down 25%, Stock
bonus went from 17 million to 17.9 million
Bear Stearns profits rose, pay doubled to
$19.6 million
E*Trade Group resigned after taking $80
million pay package
After pressure from investors Delta CEO
gave up $9.1 in bonuses
Reasoning

Board of Directors feel exec’s deserve high
salary


Doing good job in hard times
Doing more work to manage in a bad
economy
How Should Executives Be Paid?


Strictly performance based?
Because of responsibility ok to pay
even when not performing well?
What do you think?
Conclusion

Executive Compensation is different

Much more than just salary

Always a debatable topic

Ever-growing issue with the current
economy
Questions?