The Wall Street Journal Sunday / Contra Costa Times - May 28, 2006
Top dogs – The Bay Area’s highest paid execs
By George Avalos
Skyrocketing increases in the pay that companies lavish on their executives have taken a breather, at least for one year.
Executives with the largest Bay Area publicly held companies experienced, on average, a nearly invisible 0.1 percent increase in their total pay in 2005 compared with the year before, according to a Times survey of the region's 100 largest public companies.
That's well short of the speedy pace of gains in executive compensation in 2004.
In 2004, total pay -- consisting of salaries, bonuses, stock options, incentive payments, and a host of other payment vehicles devised by corporations -- soared 7.8 percent above the 2003 average level.
"The rate of increase has slowed," said David Broman, a partner with Syzygy, a Lafayette-based compensation consultant. "Companies have begun to recruit and retain compensation consultants who are truly independent."
The sluggish pace of executive compensation in the Bay Area, on the heels of big gains in 2004, mirrors national trends. A survey by Equilar Inc., a consulting firm, determined that executives with S&P 500 companies experienced a 1.6 percent gain in total pay, formally called total direct compensation. In 2004, total pay jumped 7.5 percent.
What's more, the 0.1 percent gain in executive compensation for the region's top executives fell well short of the 4.1 percent increase in average annual wages for all Bay Area workers in 2005.
But don't shed too many tears for the top bosses in the Bay Area.
The average total pay for executives with the 100 largest companies in the Bay Area was $3.7 million in 2005. The average wage for all Bay Area workers in 2005 was $53,100. This means the average worker makes about 1.4 percent of the total pay of the average top executive at a major Bay Area company.
Put another way, the average Bay Area employee would have to work about 69 years and 11 months at their current rate of pay to catch up.
"This confirms the great distance between CEO pay and the pay of rank-and-file workers," said Angie Wei, legislative director with the California Labor Federation.
And that gap seems like a yawning chasm when one takes into account the special burdens in the Bay Area these days, including hefty mortgage and rental payments, on top of $3-a-gallon gasoline.
"The rank and file remain a speck in the rear-view mirror of the CEO," Wei said. "Workers struggle to keep their heads above water."
For the second year in a row, Yahoo Inc. top boss Terry Semel is the highest-paid executive in the Bay Area, according to the Times survey. Semel hauled in about $53 million. Yet that mammoth amount is about 52 percent below the $109 million Semel harvested in 2004.
The primary difference in Semel's total pay was a sharp decrease in the value of the stock options Yahoo granted Semel in 2005 compared with 2004.
Semel's spot on top of the list reflects another big trend: the rebound of the Internet sector has put high-tech executives in dominant positions on the list. The Times survey found that seven out of the 10 highest-paid Bay Area executives, and 13 out of the top 20, were with technology firms. And four Yahoo executives, the CEO, the chief financial officer, the chief operating officer and the chief technical officer, were in the top eight in the Bay Area.
Broc Romanek, editor of Compensation Standards, an online newsletter, believes there's still a long way to go to remedy what he sees as excessive payments in recent years.
"Even if there is a slowdown in the rate of increase, the compensation levels are so astronomical and so out of whack from where they were before," Romanek said.
For example, the average total pay of top executives of $3.7 million is still 8 percent higher than the $3.4 million they were making in 2003, despite the one-year hiccup in the pace of gains.
And if some executives saw a nearly flat year for compensation, some of those pay packages could be a bit deceptive. Romanek points to the salaries reported by Google Inc.'s top bosses.
"Look at the executives at Google," Romanek said. "They may make a dollar a year, but they are some of the richest people around, when you look at the value of the shares they own."
Other analysts criticize the compensation system for being too opaque.
Michelle Leder, who writes an Internet blog called Footnoted.org, believes ordinary shareholders wield virtually no influence on the payment process.
"When it comes to compensation, companies don't seem accountable to the people holding their stock," Leder said. "It is very difficult for the average investor to figure out what is happening."
The Securities and Exchange Commission is planning rule changes that would oblige public companies to undertake new disclosure rules for executive pay.
The rules will require companies to explain in "plain English" the actual value of their chief executive officer, chief financial officer, other top officers, and their directors. The rules are expected to take effect in 2007.
"I hope that some of the SEC rules being talked about will help correct the problems, but they don't go far enough," Leder said.
Others agree that even the reforms will do little to heal a compensation process that seems out of control.
"The system is broken," Broman said. "There are still too many conflicts of interest involved in setting compensation. But there does need to be better disclosure if we are ever going to rein in this problem."
