Widening Gap Between Executive and Employee Compensation Levels

A compensation study of 200 chief executives conducted for the Los Angeles Times by the West Coast offices of Watson Wyatt Worldwide* revealed that:

  • Average (mean) CEO total compensation** = $3.02 million
  • Median CEO total compensation = $1.13 million
  • Total compensation paid to the 14 most highly compensated So. CA CEOs = $10 million plus
  • Total compensation paid to the 25 most highly compensated So. CA CEOs = $5 million plus

**Does not include windfalls that may be reaped by exercising stock options granted in previous years.

In 1999, Michael Eisner (Disney) exercised stock options worth $49.9 million; Gordon Binder (Amgen Inc.) had stock gains of $45.2 million; Henry Nicholas III (Broadcom Corp.) exercised $31.6 million in stock options; and Kent Kresa (Northrop Grumman Inc.) gained $18.9 million in stock options.

Stock accounts for the bulk of the growth in executive compensation. While salaries saw a steady growth, stock-based long-term compensation doubled over a three-year period.

A vast majority of companies have moved to stock-based incentives because

  • it ties executives to company performance (in the stock market)
  • it provides companies with tax advantages,
  • the company 'wins' when an employee leaves before their options are exercised.

That's the way it was supposed to work. But today, terminated executives are likely to be allowed to keep their unvested options, forgiven their company-provided loans and permitted to hold onto other benefits and perquisites--even when they are terminated for cause.

What started out as a high-risk, high-reward tradeoff, has transformed into a no-risk, all-gain exchange.

This is not playing well to the rank-and-file employee who's pay-for-performance paycheck can no longer pay for as many products and services as once it did. More than ever before, employees at the middle management levels and below are risking ever increasing percentages of their total compensation package, while fewer and fewer chief executives are taking meaningful risks.

While we are still enjoying relatively full-employment, and greater numbers of bellies are full and bodies are warmed, the anger of inequity is being quietly expresses rather than loudly yelled. But what will happen when the pendulum swings back in the direction of the early 90s?

And what will happen when the stock market begins to cool and shareholders wake up to the fact that, not only are they awarding huge chunks of ownership to departing chief executives, but that every share given to chief executives dilutes their own equity (sometimes quite significantly), and lessens the pool of money intended to tie lower level employees to company performance.


*Southern California Executive Pay, based on a study by Watson Wyatt Worldwide

Information for this study was drawn from proxy statements and annual reports. (Privately held companies are not required to file such reports.)

Total cash figure = annual base salary + benefits + bonus


  • deferred payments
  • car allowances
  • insurance premiums
  • retirement benefits
  • housing allowances
  • moving expenses
  • forgiveness of loans
  • present value of stock options granted during the current year using the Black-Scholes valuation method
  • total value of restricted stock awards

The top three earners in Southern California were fired.

The rest of the Top 10 all made at least $12 million.

  1. Mark H. Willes, Times Mirror (resigned), $64.5 million
  2. Robert Annunziata, Global Crossing (resigned), $40.5 million
  3. Jill E. Barad, Mattel (resigned), $38.5 million
  4. Henry Yuen, Gemstar International, $24.1 million
  5. Jeffrey C. Barbakow, Tenet Healthcare, $22.5 million
  6. Dirk I. Gates, Xircom, $19.1 million
  7. Frank G. Mancuso, Metro-Goldwyn-Mayer, $17.0 million
  8. Leonard D. Schaeffer, Wellpoint Health Networks, $16.7 million
  9. David E.I. Pyott, Allergan, $13.5 million
  10. Ray R. Irani, Occidental Petroleum, $12.7 million