Pulling the Plug on Exorbitant Pay

During the coming proxy season, bloated executive pay will take center stage.

David FitzPatrick might be a tad nervous these days. The new CFO of Tyco International Inc. landed a $21 million pay package just as shareholder activist groups began promising a crackdown on excessive executive pay.

In fact, during the coming proxy season, bloated executive pay will take center stage. The California Public Employees’ Retirement System (Calpers), with $133 billion in assets, has promised to focus on the issue this year. Meanwhile, TIAA-CREF, the teachers’ retirement fund, is readying a list of 50 top abusers. Even mutual-fund giant Fidelity Investments is reportedly considering new guidelines for executive pay.

The main driver is the excessive packages paid at such scandal-ridden companies as Enron, Tyco, and WorldCom. In addition, says Blair Jones, senior vice president at Sibson Consulting, “almost three years of mixed performance are forcing companies to take a sharp pencil” to their plans. The flaws of stock options have been particularly exposed, she says. “A power shift is taking place. Institutional investors have become more willing to put a stake in the ground [on compensation].”

One definite target is General Electric Co. In an opening salvo last October, Calpers and Amalgamated Bank of New York Inc. agreed to co-sponsor a resolution for greater use of performance-based compensation at GE. The company now requires top officers to hold stock for a year after exercising options, as well as to maintain a minimum share amount.

Peter Chingos, of Mercer Human Resource Consulting LLC, says the pressure is palpable. “We are in an environment where boards and compensation committees will not be forgiving. Executives will not be paid for effort any more. They will be paid for results.”

Popping the Pay Bubble

The highest-paid CFOs from 1998 to 2001.

* Left company
1 Based on company size

Source: Bloomberg

CFO Company
Average annual total pay

% over market norm1

Mark Swartz* Tyco International
$59,000,000
1,052%
Jeff Henley Oracle
10,800,000
281
Larry Carter Cisco Systems
13,900,000
231
Scott Sullivan* WorldCom
16,500,000
179
Richard Kelson Alcoa
10,600,000
149
Michael Rose Anadarko Petroleum
4,700,000
143
David Viniar Goldman Sachs
11,400,000
117

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