Garrison Rakes in $11.7 Million, But Might Be Underpaid by Comparison

(Click here to see the list of executive compensation.)

While most people’s salaries are confidential, the compensation for top executives of publicly traded companies must be reported in the annual proxy statement for all shareholders to see.

During the high-rolling 1990s, when money was flowing freely, executives’ pay was merely a curiosity. But in light of the economic slowdown and various accounting scandals, executive compensation packages have become a controversial issue. Critics question how companies can justify enormous salaries, raises, bonuses and stock options when the companies aren’t doing well and some are even losing money.

Arkansas’ executives are not among the stratospheric crowd.

The highest-paid executive in the state last year, based on proxies filed with the Securities Exchange Commission, was Wayne Garrison, the chairman of J.B. Hunt Transport Services Inc. of Lowell, who pulled in $11.7 million.

That figure includes his salary of $375,000, a bonus of $187,500 and other compensation of $37,917. But most of it — almost $11.4 million — is the value he realized from exercising stock options. The company posted income of nearly $51.8 million last year.

Arkansas Business does not include restricted stock awards in its calculation of total compensation. If it did — and many newspapers and magazines do list them — Lee Scott, president and CEO of Wal-Mart Stores Inc. would have led the list of highest paid executives with just under $18 million.

Although restricted stock is like common stock, it can only be sold under certain circumstances, such as after it has been held for a certain period of time or the company must reach certain performance goals.

Since restricted stock grants usually cannot be cashed in when they are received, their future value can only be estimated. Long-term, however, that type of compensation can be more valuable than stock options — especially since the market’s slide the past couple of years made some companies’ stock nearly worthless.

Earlier this month, SEC Chairman William Donaldson called for additional reforms on top of the Sarbannes-Oxley legislation that President Bush signed last year to clean up corporations after high-profile bankruptcies and financial scandals.

To restore investor confidence, the SEC chief said, executive pay must be restrained and stock options should be counted as expenses that reduce earnings. Donaldson called excessive executive compensation “one of the great, as-yet-unsolved problems.”

Stock options were popular during the ’90s when stock prices were on the rise. Those big options have been blamed for enticing executives to play with the earnings numbers to give a short-term boost to the stock price for the purpose of cashing out their options at a higher profit.

Critics of the practice say companies granted far too many options because they didn’t have to report them as expenses. Donaldson said there is an expense associated with stock options, however, that should be reflected in the company’s profit-and-loss statement.

Because of the bear market, the number of executives nationwide receiving stock options declined in the past year, while restricted stock awards went up.

Proponents of awarding restricted stock say it keeps executives focused on long-term company performance better than stock options do.

What really has people upset, however, is that there appears to be a disconnect between executive pay and company performance.

A rash of news articles about executives of poorly performing companies who were still getting millions in compensation and bonuses created a stir.

Whether from the lower value of options or pressure from public scrutiny, executive pay packages have declined.

An article in The New York Times said the average CEO compensation package in 2002 equaled $10.83 million. Business Week’s annual Executive Pay Scoreboard, published in April, said pay packages of the 365 chief executives surveyed declined 33 percent last year to an average of $7.4 million. More than 40 percent saw their incomes fall.

The 109 Arkansas execs on our list earned $94.1 million in 2001 and $111.2 million in 2002, for a increase of 18.1 percent in total compensation.

But the particular individuals on the list have changed in many cases. The top 109 on last year’s list earned a total of $110.5 million.

Narrowing it down to just CEOs — there are 27 of them for the 26 public companies on the list because Advanced Environmental Recycling Technologies Inc. of Springdale has co-CEOs — salaries for 2001 totaled $10.5 million and were up 9.2 percent to almost $11.5 million in 2002. But total compensation was down 4.6 percent from $30.5 million in 2001 to $29.1 million in 2002.

The Business Week article went on to say that compensation of senior executives is getting a much closer look as boards start to reserve the big dollars for those who deliver outstanding performance. Boards, too, are coming under more scrutiny since they are the ones who have been doling out the executive pay packages.

Executive pay in Arkansas is nowhere near the national average as cited in Business Week or the Times. — a rather interesting sidelight since the world’s largest company, Wal-Mart, and the world’s largest meat processor, Tyson Foods Inc., are based in the state.

Total compensation of the 109 public company executives on our list averaged $1.02 million. Taking just their salaries and bonuses, the average came to $634,216.

The median pay package (half make more, half less) for the 109 execs is $405,000. If just the salary and bonus are counted, the median compensation is $376,530. Both figures are skewed because Stephen Brooks, the co-CEO of AERT, does not take a salary.

When the average income of Arkansans is $27,700, it may be hard to feel too bad when the state’s executives are making about 40 times that. Nationally, however, executives take home more than 200 times more pay than does the average worker.

Executives responsible for multibillion-dollar companies that employ thousands of workers, such as Wal-Mart, Tyson, Alltel Corp., Murphy Oil Corp., Dillard’s Inc., Beverly Enterprises and J.B. Hunt, can rightly command big salaries. Companies say a good compensation package is very important in attracting and keeping good executives.

Still, whether by SEC regulations or shareholder pressure, more boards in the future are likely to take a closer look at the worth of their executives and base their pay on performance.

Highest Paid Arkansas Executives

Rank — Executive —?Company —?Compensation ?(in millions)

1 Wayne Garrison —?J.B Hunt —?$11.7
2 Joe Ford —?Alltel —?$7.4
3 John Tyson —?Tyson Foods —?$4.8
4 Lee Scott —?Wal-Mart Stores —?$4.7
5 Drue Corbusier —?Dillard’s —?$4.3
6 Thomas Coughlin —?Wal-Mart —?$3.8
7 Richard Bond —?Tyson —?$3.3
8 Scott Ford —?Alltel —?$3.2
9 James Freeman —?Dillard’s —?$3.1
10 Claiborne Deming —?Murphy Oil —?$2.7

Includes salary, bonus, profit sharing if applicable, value realized by exercising stock options realized and other income, but not restricted stock awards.

Business Week’s Top-Paid CEOs in U.S.

Rank —?CEO —?Company —?Total Compensation (in millions)

1 —?Alfred Lerner —?MBNA —?$194.9
2 —?Jeffrey Barbakow —?Tenet Healthcare —?$116.6
3 —?Millard Drexler —?Gap —?$91.0
4 —?Dennis Kozlowski —?Tyco International —?$71.0
5 —?Irwin Jacobs —?Qualcomm —?$63.3
6 —?Charles Cawley —?MBNA —?$48.6
7 —?Robert Kotick —?Activision —?$43.3
8 —?Ralph Roberts —?Comcast —?$39.8
9 —?Charles Fote —?First Data —?$39.1
10 —?Orin Smith —?Starbucks —?$38.8
Source: Business Week magazine. Compensation includes long-term compensation such as exercised options, restricted shares and long-term incentive payments, but doesn’t include unexercised option grants.

Forbes’ Highest Paid Executives

Rank —?Name —?Company —?Total Compensation (in millions)

1 —?Jeffrey Barbakow —?Tenet Healthcare —?$116.7
2 —?Dwight Schar —?NVR —?$94.3
3 —?Michael Dell —?Dell Computer —?$82.3
4 —?Irwin Jacobs —?Qualcomm —?$63.6
5 —?Barry Diller —?USA Interactive —?$53.1
6 —?Dan Palmer —?Concord EFS —?$43.4
?

7 —?Charles Fote —?First Data —?$39.2
8 —?Orin Smith —?Starbucks —?$38.8
9 —?Richard Fuld Jr —?Lehman Bros. Holdings —?$29.8
10 —?Maurice Greenberg —?American International Group —?$29.3

Source: Forbes magazine. Rank is based on total compensation for latest fiscal year.