Interesting data from survey of top CEO salaries in the SF Bay Area

The following information is drawn from the "Executive Pay Special
Report," published in the Contra Costa Times, Sunday, May 28, 2006 and
from the SFGate.com website, which summarizes survey data from the San
Francisco Chronicle's annual survey of executive pay at 200 local
companies. To read more about the latter survey, go to the following
URL:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/05/21/BUGF3IUCAD1.DTL

The above-cited article reports that: Yahoo CEO Terry Semel was the
highest-paid [local] executive in 2005, just as he was in 2004. Semel
earned $56.8 million last year in total compensation (including
restricted stock and the estimated value of his options), down from
$131.2 million in 2004.

Even with the drop, Semel earned $16.9 million more than the
second-highest paid executive, Genentech CEO Arthur Levinson, who
earned close to $40 million (mostly in options). Thanks to a large
recruitment package, new Hewlett-Packard Co. CEO Mark Hurd was third
at nearly $35 million, with Oracle CEO Larry Ellison fourth at $25
million (including a $6.5 million bonus and loads of options).

Much of the executive pay is in the form of stock options and
restricted stock rather than actual cash. Usually, executives are
prohibited from selling the stock for years. And stock options are
tricky to value...

In fact, of the more than 1,000 executives in the survey, four of the
seven highest-paid executives worked at Yahoo.

"It sounds like a compensation approach that has gotten out of
control,'' said David Broman, chief executive of Syzygy Consulting
Group in Lafayette, which helps design compensation packages. "I can't
think of anything that would suggest why they should continue to be
No. 1 on the list."

Interestingly, I couldn't find any CEO or other exec's salaries listed
for Google, whose stock has almost doubled since the early days of its
offering when it was going for about $200 per share. Maybe they have a
different way of doing things over at the G-whiz place!

A report just out lists the 2005 actual salaries of the 100
highest-paid CEOs in the Bay Area -- ranging from $5 million per year
(the LOWEST PAID) up to ~ $53 million for the high-paid Yahoo CEO
indicated above. They also listed the top 50 in the East Bay
(consisting of the Oakland-Berkeley-Fremont cluster of cities in
Alameda County plus the suburban cluster of Concord-Walnut
Creek-Lafayette-Danville and the northerly tier of bayside cities in
Contra Costa County). That showed up an additional 40 who made $2
million per year or more (in the East Bay area alone).

Overall, the salary surveys, which also list company profits for 2005,
reveal some rather impressive statistics. One of the largest and (in
this era of high gas prices, almost needless to say) most profitable
of companies in the Bay Area was Chevron/Texaco, based in San Ramon
and with their major refinery in Richmond, both part of the East Bay's
Contra Costa County. The company made a profit of over $14 billion in
2005. Their CEO, David O'Reilly, made 19% more in 2005 over 2004, with
total pay of almost $24 million, including his base salary,stock
option value, and "miscellaneous other pay" of some $3.75 million.

The next most profitable companies, according to the Contra Costa
Times survey, were Intel, Wells Fargo, and Cisco, with about $8.6,
7.6, and 5.6 billion each in profits. Add Oracle and HP, and you've
got all the companies that made $2 billion or more. Didn't we read not
too long ago that these companies were all in hard times? Hmm, maybe
it's more than just the oil companies that are cleaning up these
days...

So, do the really big pay packages match up with the big profits? No,
not necessarily. Yahoo's managers topped the pay list, even though it
missed making the $2 billion profitability mark. And they made a lot
less than that in 2004. Their new guy, a former co-CEO of Warner
Brothers, seems to have done a very impressive job of turning them
around, according to the bizness gurus.

Several CEOs make more than the Chevron CEO, Intel's CEO, Paul
Otellini, is down at #40 on the list, even though his company came in
second in profitability. (Poor guy only made $9,363,600 in 2005.) And
Wells Fargo's Richard Kovocevich was #10 with his package of just
under $22 million, even though his company's profit of over $7.6
billion was the third biggest profit of any Bay Area company. Not bad
at all, eh?

Now -- here's a nice stat for you: Thirty-three CEOs in the SF Bay
Area made $10 million or more in 2005. Wow!

What's really interesting, though, is to see a whole newspaper page,
with listings of 100 CEOs (all in small print), all of whom made over
$5 million in 2005. Then you turn the page and find there are 40 more
who all made over $2 million, and they're in the (relatively
backwater) East Bay area -- in places the likes of Oakland, Berkeley,
Hayward, and Walnut Creek, for goodness sakes!

It always helps to be the boss -- especially the BIG BOSS! Several of
these guys actually managed to keep their multi-million dollar pay
packages while losing $100 million or so for two or more years in a
row. Now that's management you have to admire, don't you think?

It's also interesting to see what kind of companies who are doing so
well in the Bay Area. There are internet companies, oil companies,
retail companies, special effects companies (like Pixar), computer
companies, banks, software, hardware, biotech, brokerage firms, food
processing, grocers, utilities, scientific instruments, real estate
and property management companies -- you name it, it's represented in
this amazing list of successful companies and their CEOs.

I certainly wouldn't want to try to find the average pay for these
guys (it might give a computer a headache), but because of the very
high numbers racked up like the Yahoo folks, median values are
probably more meaningful anyway. That's easy enough; just look for a
central value in each list. Let's say #51 on the 100 list and #26 on
the list of 50 in the East Bay alone.

These positions belong to Richard Justice, CEO of Cisco, with a pay
package of about $8.4 million, and Kenneth Klein, the CEO of Wind
River Systems in the East Bay, with total pay of about $2.9 million.
If these are considered representative, we're looking at CEO payrolls
of some $850 million for the top 100 Bay Area executives, and then
another $150 million for the additional East Bay top executives -- for
a super-cool $1 billion per year these guys pull down. And that's just
ONE of our major metropolitan areas -- by no means among the very
biggest, but certainly in the top ten. Maybe values of the services of
these CEOs is artificially inflated because of Silicon Valley, the
Web, movies, high property values and area wages in general. Perhaps
-- but still, to consider that this much wealth resides under the
control of 140 men and women is rather staggering -- and it gives us a
clue as to why the rest of the labor force may be increasingly
disgruntled with the 'system.' Just a thought -- I could be wrong --
and maybe it doesn't really matter. But... then again -- maybe it
DOES...

What do YOU think?

-- Rick Mitchell

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