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Fat Paychecks Rile Shareholders During Annual Meeting Season With BC-Executive Pay-List,

April 19, 1992

Fat Paychecks Rile Shareholders During Annual Meeting Season With BC-Executive Pay-List, BC-Annual Meetings-Box and BC-Annual Reports

WASHINGTON (AP) _ Congress is mad about it. The newspapers and airwaves are full of it.

And at annual stockholders meetings this spring, corporate executives are going to get an earful about it from state pension plans and others with billions of dollars in stocks.

What’s the controversy? Paychecks - very big paychecks and bonuses awarded to top executives, even if profits are off and stock prices are down.

Take Andrew Sigler, the chairman of Champion International Corp., a paper maker whose stock has been performing poorly for years.

He was paid $1.14 million in salary and bonus for 1991, down 8 percent from 1990, while the Stamford, Conn.-based company’s earnings dropped 82 percent.

At a hostile session April 9 with heads of the nation’s biggest pension funds, Sigler and a member of Champion’s board tried to explain the logic behind regularly paying a bonus to top executives - even when the company’s performance is down.

But listeners like New York City’s commissioner of finance, Carol O’Cleireacain, wanted to know when poor performance would eliminate Sigler’s bonus or require him to give money back.

Sigler, who has been chairman since 1974, told his incredulous audience that doing a job so poorly would get him fired first.

″They don’t get it,″ said O’Cleireacain, a trustee of four New York City pension funds with $45 billion under management. ″It doesn’t occur to them that that’s not the way the world works for real people.″

Outrage over fat corporate paychecks has been building for years. But the stumbling economy, marked by profound layoffs in some industries, has made it an emotional election-year issue and a hot topic among investors.

For shareholder activist Ralph Whitworth, big pay is just a symptom ″of a much larger problem, and that’s the lack of accountability. The reason that you have runaway pay is that you don’t have accountability.″

Whitworth heads the Washington-based United Shareholders Association, an activist group that pushes for more investor input on management performance. He said ″people are fed up with special deals for special people.″

Take the 1 million shares, worth an estimated $81 million, given Cocoa-Cola Co.’s chief executive, or the $4.5 million in salary and stock options paid the head of General Dynamics Corp.

At least those companies’ stocks have done well. More anger is directed at executives whose companies’ earnings or stock are faltering, like Sigler or Ford Motor Co. Chairman Harold A. Poling, who took a pay cut and still made $1.14 million in 1991, as his company lost $2.3 billion.

At Chrysler Corp., Chairman Lee Iacocca received nearly $2 million more than Poling, although the automaker lost $795 million.

″There’s an awful lot riding of the performance of corporate America: Workers are getting laid off. Shareholders are not receiving much return on their investment, and frankly there’s a little bit of a witch-hunt going on,″ said California Controller Gray Davis, who oversees the biggest pension funds in the country. ″I don’t subscribe to that, but I do think we need CEOs with moral authority. If you’re downscaling, or planning for the long term, you need to demonstrate moral authority by reducing your compensation.″

Two bills are pending in Congress to control or give shareholders more say in big corporate pay.

And at the Securities and Exchange Commission, the government’s stock watchdog, plans are afoot to demand clearer explanations of the bonuses and stock options given executives.

In most cases, shareholders now have an indirect voice through the company’s board of directors. But while the board is elected by shareholders, they often are nominated by company management and thus are beholden for their board seat, shareholder activists complain.

A New York pension fund wants an independent panel to set pay for top executives at Reebok International Ltd. The New York City Employees Retirement System, which has less than a 1 percent stake in the shoe maker, called for the change after reports that Reebok Chairman Paul Fireman was paid $15 million in salary and $18 million in stock options in 1990 - a figure Reebok disputes.

Executive compensation is also a big issue for the California Public Employees’ Retirement System, or Calpers, said Kayla Gillan, assistant general counsel of the nation’s biggest public employee pension fund.

″If pay is not appropriately linked to performance, we fear there is not the type of incentive to perform for the benefit of shareholders that we need,″ she said, adding that big paychecks also seem to indicate boards may not be exercising enough oversight.

There are other sides to the story. Peter T. Chingos, a leading compensation consultant with the accounting firm KPMG Peat Marwick, said ″it’s a timing issue.″

Corporate executives are cashing in stock options issued several years ago. ″If the company’s performance is going in the right direction, it’s really a non-event,″ said Chingos, who advises corporations on what to pay their executives. But now companies are under pressure to contain costs and close plants, ″and what we’re seeing are these compensation numbers that are just absolutely mind-boggling.″

Too many boards are merely paying what they think the marketplace demands, Chingos added. If boards and management would develop a clearer compensation strategy targeted to company performance, ″I think a lot of these issues would go away.″

There is evidence that corporate America is getting the message. Top executives at Tyson Foods Inc., the chicken processor, took a 33 percent pay cut in fiscal 1991, saying sales growth was slow.

Westinghouse Electric Corp., which lost $1.1 billion in 1991, cut the salary of chairman Paul E. Lego from $1.68 million to $677,083.

In the most surprising development, outside directors engineered a shakeup at General Motors Corp., demoting two top executives. And GM Chairman Robert C. Stempel took a 31 percent pay cut.

″The General Motors board wouldn’t have done what they did if it hadn’t been for instituional investors‴ pressure, said New York’s O’Cleireacain. ″They’re being sensitized and it’s our job to keep sensitizing them.″

Others aren’t so sure the tide is turning yet.

″The things that companies are announcing this year are more cosmetic than substantive,″ said Calpers’ Gillan. ″I think they have to be very thoroughly evaluated.″

End Adv for Sunday, April 19

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