What Goes Up, Often Stays Up When Stock Prices Tumble, Ceo May Not Follow

Last year was something of a banner year for corporate chief executives: Company profits rose faster than sales, stock prices rose faster than profits and executive pay rose faster than everything.

It’s all part of the rush toward pay-for-performance, an idea that has been so widely adopted that more than two-thirds of the pay of the typical corporate chief now is tied to financial measures of some kind. And during the long expansion and bull market of the 1990s, these schemes have driven CEO pay to levels never contemplated by the “reformers” who first proposed them.

But what happens when the economic worm turns and stock prices decline? Will executive pay fall as steeply as it rose?

Don’t count on it. In an unscientific sample of proxy statements of a dozen companies whose stock prices have declined, it appears that while some chief executives shared in the pain of their shareholders, just as many others did not.

At Black & Decker Corp., for example, chairman Nolan Archibald last year received a $75,000 raise in his base salary (to $900,000), a $600,000 increase in his bonus (to $1.4 million) and a $250,000 increase in long-term incentive payments (to $1.4 million). On top of that, Archibald cashed in options on shares of Black & Decker stock that netted him a profit of $2.9 million.

Add it all up and it comes to just under $6.7 million for the Black & Decker chief last year - the same year in which shareholders saw the value of their stock decline from $26 to below $23 per share.

It also was a down year for shareholders in Dominion Resources Inc., a Richmond-based utility and parent to Virginia Power Co. But don’t cry for chairman Thomas E. Capps. Capps received a pay package valued at $1.4 million, up from $1.1 million the year before.

In their report to shareholders, Dominion Resources directors conceded that, under the formula set at the beginning of the year, Capps would not have received an increase in compensation: Targets for earnings growth and return to shareholders had not been met. But in the end, the directors decided to throw in an extra grant of 7,500 shares of stock, worth $286,000, in recognition of Capps’s contribution to “long-term shareholder value.”

It should be noted that for every company that raised executive pay in the face of declining stock prices, there was another that reduced CEO compensation. At GRC International Inc. of Vienna, Va., for example, which took a drubbing on Wall Street last year, CEO James Roth lost the $75,000 bonus he had earned the year before. And at software maker Intersolv Inc. of Rockville, Md., CEO Kevin Burns saw his bonus drop to $89,000 in 1996 from $300,000 in 1995, a year in which the price of company stock fell drifted down to $9.25 from $13.

There are also times - as in the case of CSX Corp. Chairman John Snow when it’s a lot easier to quantify the performance than the pay in pay-for-performance plans.

According to the company’s proxy statement, Snow’s annual salary was nearly $1 million, up 11 percent last year, along with a $1.5 million bonus paid in CSX stock. In addition, the board granted Snow another $1.6 million in long-term compensation and stock options valued at $2.8 million. The company also extended Snow a loan at below-market rates to buy an additional 679,000 shares of CSX stock. And the board decreed that, for the purposes of calculating his future pension payments, Snow would be considered to have served 44 years at the company when, in fact, he joined it only in 1980.