It was a very good year in 2003 to be an executive of a publicly traded company.
Improved share prices and stronger corporate earnings triggered hefty raises for many such executives here, and more of them saw the improved market as a good time to cash in on stock options that propelled their compensation even higher.
Executives of publicly traded companies in Spokane and North Idaho, on average, saw their paychecks soar nearly 48 percent in 2003, an annual analysis by the Journal of Business shows. It was by far the largest increase the Journal has seen in the 11 years in which it has tracked executive pay here.
The analysis of the compensation of about 65 executives here found that their average pay, including perks, long-term incentive pay, and gains on exercised stock options, skyrocketed to about $555,000 in their employers 2003 fiscal year. That compared with about $376,000 for the same set of executives in the previous year, when compensation jumped a robust 17 percent.
Exercised stock options were a big reason for the sharp rise in average compensation, with 17 executives cashing in for an average gain of $404,400 each, compared with just 10 executives doing so last year, for an average gain of about $163,000. Even without including gains from exercised stock options, compensation among the executives here jumped about 21 percent last year.
Counting just salary and bonuses, the average executives pay grew about 17 percent, to about $349,000.
The information for the analysis came from the proxy statements of 14 publicly traded companies based in the Inland Northwest. Public companies are required to file such information annually with the U.S. Securities and Exchange Commission.
The hefty 48 percent jump in average overall compensation wasnt the only first to emerge from the analysis. Occasionally, the Journals annual list of top-paid public-company executives has included one or two execs whose total compensation topped $1 million. In this years analysis, nine executives received compensation in excess of $1 million, and three of them received more than $2 million.
The big compensation boost here also was significantly higher than that found this year in the annual Wall Street Journal/Mercer study of CEO compensation. The Wall Street Journal reported in April that overall compensation among the CEOs of the nations largest companies climbed 16.4 percent in 2003. Its study, however, uses medianor the midpoint in a rangerather than average compensation, in its calculations. Median overall pay in the Spokane study was up 41.3 percent.
Also noteworthy would be to compare the 48 percent jump in executive pay here with the 4.1 percent growth in U.S. wages and benefits for all workers last year.
Topping the Journals list of 40 highest-paid public-company employees this year is Arthur Brown, chairman of Coeur dAlene-based Hecla Mining Co., who, thanks to stock-option gains of about $1.5 million and another about $680,000 in tax-offset bonuses and retirement pay, had total compensation of about $2.6 million. Brown, who was ranked No. 2 on the list last year, retired as CEO last spring, but remains Heclas chairman.
Fellow mining executive Dennis Wheeler, chairman and CEO of Coeur dAlene Mines Corp., ranked No. 2 this year, with overall compensation of about $2.1 million. Wheeler, who moved up from No. 6 last year, received restricted stock awards worth about $1.2 million on top of his salary and bonus of about $950,000.
Rounding out the top five were Sterling Financial Corp. Chairman and CEO Harold Gilkey, with overall compensation of about $2 million; James Sabala, Coeur d'Alene Mines' new CFO, at about $1.3 million; and Jack Gustavel, chairman, president, and CEO of Coeur dAlene-based Idaho Independent Bank, with compensation also at about $1.3 million.
The other executives to make more than $1 million last year were: William Zuppe, of Sterling; Robert Martinez, of Coeur dAlene Mines; Penn Siegel, of wood-products maker Potlatch Corp.; and Georgia Shonk-Simmons, of Sandpoint-based retailer Coldwater Creek Inc.
Absent from the top 40 this year were the following CEOs: WestCoast Hospitality Corp.s CEO Art Coffey, ranked No. 42; Gold Reserve Corp.s Rockne Timm, at No. 46; and Northwest Bancorp.s Randy Fewel, No. 53.
Some saw decreases
Not everyone got a raise. Itron Inc. Chairman and CEO LeRoy Nosbaum saw his 2003 compensation fall 49 percent, to $410,000, dropping him to No. 30 on the list from No. 7 the year before. Nosbaum, like most of his Itron colleagues, didnt get a bonus in 2003; his 2002 bonus was nearly $400,000. Itrons share price fell 4 percent in 2003, though its earnings were up more than 20 percent.
Itron, the big maker of automated meter-reading technology for utilities, and Key Tronic Corp., a contract manufacturer, are the only two publicly traded technology companies here. As a group, the executives of those two companies saw their pay fall 24 percent last year.
The year also was not favorable to the executives at WestCoast, who together saw their paychecks shrink an average of 21 percent in 2003.
Most companies in the survey, however, gave their top-level executives substantial raises. Coldwater Creek, with profits and share price both climbing last year, doubled, on average, the compensation of its top five executives, to an average of $718,000, from $351,000 the previous year. Sterling, Hecla, and Coeur dAlene Mines also boosted executive pay on average by at least 90 percent. All three companies had shown sharp improvement in share price and earnings in 2003, though Coeur still showed a loss.
Overall, companies in the natural-resource industries of mining and wood products provided the biggest pay increases, averaging 94 percent. Collectively, execs in the financial industry saw their pay grow an average of 39 percent. The areas only publicly traded utility, Avista Corp., boosted the pay of its top executives by an average of 28 percent, having seen its earnings and share price both soar by more than 50 percent during the year.
Coldwater Creeks Shonk-Simmons, one of only seven female executives included in the compensation analysis, remained in the top 10, even after moving down from the CEOs post the year before in a transition that put Coldwater co-founder Dennis Pence back in as CEO. Shonk-Simmons made just over $1 million last year, all in salary and bonus. Pence made about $823,000 last year, ranking him 12th on the list, up from No. 45 the year before.
Though salaries and bonuses for this years group of executives grew a healthy 17 percent last year, the biggest change in compensation for them came in stock grants.
Very few executives tracked in this analysis received restricted stock, which are shares of stock given outright to an executive, usually with restrictions on when they can be sold. More commonly, stock options are granted.
With a stock option, a company grants an executive the right to buy a certain number of common shares within a set period at a specified, frozen price. The exercise price typically is set at the market price for the stock on the day the option is granted. If the stock price then climbs, the executive can exercise the option to buy those shares at the lower exercise price, and reap a gain.
If the stock doesnt climb, or falls, however, the stock options have no value at all, and are referred to as being under water. With the stock market relatively strong now, few options granted this year by companies here currently are under water.
Stock options have long been a key component of the compensation of public-company executives, but that could change in the future, as companies comply with upcoming rules that require them to charge the estimated value of the stock options they grant against their earnings.
In 2003, companies here granted about 24 percent fewer stock-option shares to their employees than they did in 2002. The Wall Street Journal noted the same trend in its national analysis.
Karen Feltes, Avistas vice president for human resources and corporate secretary, says thats the tack the longtime utility has taken also, but perhaps not for the same reasons as other companies.
Feltes says Avista restructured its executive-compensation packages last year to reflect a general shift in the companys culture to more of a back-to-basics financial approach that focuses on conservative, long-term stability rather than flashy growth.
Avista, she says, began offering stock options to executives in the late 1990s, when the company was pursuing a growth strategy that included growing its non-utility technology units amid the technology boom. Avistas stock back then was much more volatile, as then-CEO Tom Matthews talked of technology spinoffs and initial public offerings.
Our strategy has shifted, Feltes says now. Were looking at stability over time and good return for our shareholders. Options just didnt make sense for us anymore.
Instead, Avista, like many other companies, has devised a new way to reward top executives. It now grants what it calls performance shares that mature after three years. The actual payment of those awards depends on Avistas performance during that three-year period, based on total shareholder return compared to the returns of other companies in the S&P 400 Utilities Index. The payment will be made in either cash or common stock.
We felt that this would be good for shareholders as well as executive retention, Feltes says.
Stock options still are being granted by some companies, and there were a lot of stock options granted in the past that can be exercised now. They can be lucrative.
In addition to the $1.5 million in gains that Heclas Art Brown reaped from exercised options last year, other executives in this region profited as well. Sterlings Gilkey posted about $940,000 in stock-option gains last year, Idaho Independents Gustaval made nearly $738,000 in such gains, and Sterlings Zuppe collected over $500,000 when he exercised some of his options.
Theres plenty of money still on the table. As of the close of the companies 2003 fiscal years, the 64 executives included in this analysis had a combined $38.8 million in gains available to them in exercisable, in the money options, and another $13.3 million in options that werent exercisable due to rules attached to them or because they were under water at the time.
Doesnt reflect region
Spokane headhunter Jeannine Marx warns that although reading about what other people make is interesting and entertaining, the big jumps in compensation found in this years study dont necessarily reflect whats happening in the regions economy.
Marx, the longtime president of the Spokane technology support group Technet, says that the compensation packages she gets involved with dont include those size of increases, and says that, unfortunately, what the studys results might reflect is a growing chasm between the haves and the have-nots.
Its incredible, she says of the fact that nine of the top 10 executives on this years list made more than $1 millionand the 10th was within $45,000 of that much.
Marx predicts, as others have, that executive compensation will come under increased scrutiny in the future, that pay will become more closely tied to shareholder return, and that how they got there will be vetted carefully. Stockholders are asking for more accountability, she says. Companies have found out what happens when they arent paying attention.
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