Executives still raking in the cash

Ground Floor Sheila O'FlanaganThose happy list makers at Forbes have been at it again with the publication of the best and the worst-performing US chief executives of the year. Forbes ranked bosses on a pay-versus-performance scale working on a group of candidates who'd been six years at the helm against a six-year pay history.

One hundred and ninety four people matched the criteria and they were ranked in a number of ways before the accumulated points gave a final list.

The chief executives of the US's top 500 companies received an aggregate 8 per cent pay hike last year. (In 2002, chief executive pay took a hit of 35 per cent.)

The coyly named "compensation" packages include salary, bonuses and other benefits such as gains realised by exercising stock options. The 2003 pay hikes helped bring total packages to $3.3 billion (€2.8 billion).

Top of the pay list by a fair distance was Reuben Mark, the chief executive of Colgate Palmolive, who took home just under $148 million - twice that of next in line George David of United Technologies.

The average made by the chief executives was $6.7 million, with only 14 per cent of that coming from basic salary. The majority - 39 per cent - was from exercising stock options and 24 per cent was from bonuses.

Forbes then had a look at the best and worst value in bosses. For the second year in a row, the number one chief executive in the US was Jeff Bezos, the founder of Amazon.com.

Following its spectacular rises and falls during the 1990s, it has now carved out its reputation as the leading online retailer and Bezos has delivered a 58 per cent annual return to shareholders since the floatation in 1997.

Using the Forbes six-year study, Bezos had an annual pay cheque of a mere $82,000 with a 34 per cent return.

In Forbes's own poll, which allows you to vote online for your favourite chief executive, Bezos comes in third behind Mitchell H. Caplan of E*Trade and Terry Semel of Yahoo in the internet sector with a 62 per cent approval rating.

Bezos was followed in the list by Joseph R Ficalora, who has been chief executive of New York Community Bancorp for 11 years and who delivered an 41 per cent return during his tenure, a 32 per cent return over the past six years, and who received an average six-year package of just under $1.6 million.

However, the worst chief executive was Richard Manoogian of building materials group Masco Corp. Manoogian is taking home an average $13 million and has delivered just 2 per cent return to shareholders over the past six years.

Amazon also tops the list of best-performing company boards. It has six outside directors who receive an average of $392,000. Not surprisingly, Masco is represented in the bottom five. It also has six outside directors who take home $27,000 each.

The difference between the Amazon and the Masco packages is simple. It's in the equity portion of the compensation. The Amazon crew get nothing in cash, it's all equity. By contrast, in Masco it's all cash.

However, when Forbes ranked the 194 companies in stock performance over the past six years relative to their industry averages, they found that the outside directors of the five worst companies earned relatively 1.6 times more than the five best.

The question it rightly asks is whether board members with an easy number are prepared to challenge a poorly performing chief executive who gave them the job in the first place. But if you're not on a nice little earner for doing very little and if your rewards are based on the performance of the chief executive, you will be quicker to get rid of him or her if the share price isn't performing as it should.

It's quite interesting that basic pay is such a small ratio of chief executive compensation. In fact, at an average of just below $1 million a year, it's the least significant,

On the other hand, the stock option is the largest and it's one of the areas that has caused the biggest outcry from shareholders and commentators (myself included). The concept of share options is a good one. But when those options are issued at ridiculously low prices, as they were for most of the last decade, they're an affront to shareholders.

Some companies are now limiting the amount of options given to their top people. Others are making them dependent on exceeding expectations.

As always, however, the expectations have to be realistic and challenging, otherwise why the reward for exceeding them?

Not all chief executives are greed merchants. Some elected to forgo their bonuses for the year. More than one declined a bonus and asked for the amount to be distributed among members of the management team or other employees.

One chief executive didn't receive a salary for the last three quarters of the year as part of a cost-reduction plan. And one doesn't get paid at all. But, as a group, they still took home $3.3 billion last year.