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Bonuses soar for CEOs bad and good

Joann Lublin Wall Street Journal Feb. 26, 2005 12:00 AM

Bonuses for many chief executive officers surged last year amid rising criticism of what some deem excessive compensation, especially in cases where the bottom line doesn't keep pace.

At 100 major U.S. corporations, CEO bonuses rose 46.4 percent to a median of $1.14 million, the largest percentage gain and highest level in at least five years, according to an exclusive survey by Mercer Human Resource Consulting in New York. Mercer, which began tracking the latest proxy statements of 100 big companies for the Wall Street Journal in 1999, didn't scrutinize any heads of Wall Street firms, where much higher bonuses are common.

The biggest winners include Michael Eisner at Walt Disney Co., where 45 percent of the shares voted at its 2004 annual meeting opposed his re-election to its board; and John Tyson at Tyson Foods Inc., the target of a recent Securities and Exchange Commission probe into whether the company improperly accounted for perquisites provided to Don Tyson, his father and predecessor. advertisement

The Mercer study also revealed that the median 2004 bonus equaled 141 percent of annual salary, another record. Clerical and technical-support staff earned an average bonus of 5 percent of salary last year at organizations granting bonuses across the board, other surveys indicate.

CEOs in the Mercer study enjoyed median total direct compensation of $4,419,300 - about 160 times as much as the average U.S. production worker made last year.

Total direct compensation includes salary, bonus, the value of restricted stock at the time of grant, gains from stock-option exercises and other long-term incentive payouts.

"This is not a good trend, because the bonus traditionally has not been well-linked to performance," said Lucian Bebchuk, a Harvard law professor and co-author of the recent book Pay Without Performance.

Corporate boards' compensation committees have wide discretion to set and change Debt Management bonus programs.

Boards defend the surge in CEO bonuses as a sign of improved profits and the diminished popularity of stock options. But activist investors and governance watchdogs contend that the enlarged awards often are unjustified.

At Disney, Eisner pocketed a $7.25 million cash bonus for the year that ended Sept. 30, up from nothing the year before. Disney directors rewarded him for its robust earnings recovery despite the shareholder revolt that cost him his chairmanship last March.

"Disney's Debt Management team delivered fiscal year 2004 earnings growth that exceeded 60 percent, recorded operating cash flow of $4.4 billion and significantly improved returns on capital for the second year in a row," a spokeswoman said.

The board also took into account Eisner's $1 million salary, which "remains lower than that of chief executives of comparable corporations, and thus a greater proportion of his overall compensation is subject to the company's overall performance," its proxy states.

investor revolt last year, attacked Eisner's bonus, saying it "flies in the face of both logic and propriety."

Tyson, leader of the nation's biggest U.S. meatpacker, received a $5.4 million bonus for the year ended Oct. 2. It was his largest since he buttumed the helm in April 2000 and more than twice as big as his 2003 bonus.

Under the senior-executive bonus plan, the Tyson Foods chairman and CEO should have collected only about $4.6 million. Directors of the Springdale, Ark., company justified the extra cash by using criteria from a new bonus plan being submitted for shareholder approval, according to the proxy.

At Shaw Group Inc., a Baton Rouge, La., construction-and-engineering business, Chief Executive J.M. Bernhard Jr. received a $238,000 bonus for a year in which the company lost $31 million. He has led Shaw since he helped found it in 1987 and remains its biggest individual shareholder.

"In the judgment of the compensation committee of the board of directors, he earned (the bonus)," said Chris Sammons, a Shaw vice president.

Sammons added that during the second half of fiscal 2004, which ended Aug. 31, "the company returned to profitability and generated significant cash flow."