Good Girl, Bad Girl

Good Girl, Bad Girl

Good Girl, Bad Girl

July 18 1997 3:30 AM

Good Girl, Bad Girl

She runs a much bigger company but makes a lot less money. Why?

Good Girl, Bad Girl She runs a much bigger company but makes a lot less money. Why?

By Graef Crystal
(727 words; posted Thursday, July 17)

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      Each year, I study CEO pay in 1,000 or more large and medium-sized companies, and each year, three things amaze me. First, the size of CEO pay packages is huge, and growing. In 1996, 60 CEOs were paid more than $10 million and 17 CEOs got more than $20 million.       Second, the variability of pay from one company to another is amazing. For 1996, 42 percent of the variation in CEO pay levels could be accounted for by company size and performance. Bigger companies pay a lot more than smaller companies, while better-performing companies pay a tiny bit more than worse-performing companies. But that leaves 58 percent of the variation in pay unexplained. It seems completely random.
     Third, there are almost no women CEOs. Twenty years ago there were few women ready to be CEOs of significantly sized companies. Today that is hardly the case. Yet of the 1,000 or more CEOs in my study this year, only two are women.

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But the two women nicely illustrate the first two points. One is Marion O. Sandler, who, along with her husband, Herbert, runs Golden West Financial, based in Oakland, Calif. And the other is Linda J. Wachner, the CEO of not one but two publicly traded companies. The larger is New York City-based apparel manufacturer Warnaco. The smaller is Los Angeles-based Authentic Fitness, a manufacturer of, among other things, Speedo and Catalina swimsuits.
     Golden West Financial is about twice as large as Warnaco and Authentic Fitness put together. But the Warnaco-Authentic Fitness combination has modestly outperformed Golden West over the last three years. So based on company size and performance, one would not expect a large difference in the pay packages of Golden West's Sandler and Warnaco-Authentic Fitness' Wachner.
However. For 1996, Sandler earned a salary of $973,000 and received a very small stock option. Her total pay for the year, including some tiny amounts of miscellaneous compensation, was $1,652,000. She does share her CEO duties with her husband, while Warnaco's Wachner rules alone (and, by all accounts, with an iron hand). So to be fair, let's double Sandler's pay and count it as $3,304,000.
     In the world of CEO pay, that amount is actually quite modest. Given company size and performance, an average-sized pay package for the two Sandlers would have been $4.3 million. Hence, even after combining the pay of both executives, they are 23 percent below the market rate.
Now for Warnaco's Wachner. In 1996, she drew a salary of $2.55 million from Warnaco and $975,000 from Authentic Fitness, for a total of $3.52 million. Her combined salary put her 491 percent over the market, after taking into account the sizes of her two companies. No other CEO, among the 1,000 I studied, was so relatively overpaid.
     But Wachner's pay didn't stop with her $3.52 million of base salary. She received a hefty bonus at Warnaco and some huge stock options at both of her establishments. Her cash pay plus the estimated present value of her 1.5 million option shares add up to a stupefying $29,796,000 (a figure that, in her world of retailing, looks like it was designed to fool the buyer into thinking that her pay package was lower than $30 million). Taking into account the combined size and performance of her companies, a competitive rate of pay for her would have been a mere $3.1 million. Hence, she ended up being overpaid by 857 percent--the seventh most relatively overpaid CEO among the 1,000 I studied.
One company pays $3.3 million for two CEOs, another pays almost $30 million for one. In this case, size and performance can't begin to explain the difference. What does? I have a theory about such cases. I think it has a lot to do with the conscience of the CEO. If a CEO wants not to overdo it, she simply doesn't push her compensation committee very hard. But if a CEO wants to squeeze her compensation committee to the max, then he or she can walk away with a wild pay package.
     We need a lot more women CEOs, and not merely because of considerations of fairness. Those extra women will expand the supply of CEOs and help to drive down, or at least moderate, the currently obscene levels of CEO pay. I only hope those new women CEOs are like Marion Sandler, rather than like Linda Wachner.
Links The Feminist Majority Foundation presents an online, multichapter work titled Empowering Women in Business. Chapters include " The Glass Ceiling," " Myths About Women in Business," and " A Feminist Agenda for Women in Business." Hoover's Online Company Profiles offers financial statistics, a list of top executives, and operations descriptions for both the Warnaco Group and Golden West Financial. Graef Crystal, an expert on executive compensation, writes a monthly column on the subject for SLATE.

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Illustrations by Michael Sloan.

Graef Crystal, the nation's best-known expert on executive compensation, was a consultant to Disney on Michael Ovitz's contract.