NW Exec Salaries Top State

Highest Paid Execs
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Executive Compensation List
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As befitting the world’s largest company, executives at Wal-Mart Stores Inc. rank as the highest paid in the state.

A third of the Top 10 come from the Bentonville retail giant. In fact, the five Wal-Mart leaders in the Northwest Arkansas Business Journal’s annual report on public company executive compensation made a combined $19.2 million. That represents about 22 percent of the $88.8 million that public companies statewide shelled out to their top officers.

The six-county northwest corridor — Benton, Washington, Carroll, Madison, Sebastian and Crawford counties — plus Harrison boasts $54.9 million, or 61.8 percent, of the state’s public company executive payroll. Seventy-eight percent of the regional tally ($42.8 million) went to the public company brass in Benton and Washington counties.

H. Lee Scott Jr., Wal-Mart’s president and CEO, had total compensation of $8.7 million last year. Thomas Coughlin, executive vice president, is second on the list with $4.4 million. And John Menzer, another EVP, pulled in $2.9 million.

While most people’s salaries are confidential, the compensation for top executives of publicly traded companies must be reported in the annual proxy statement filed with the Securities and Exchange Commission for all shareholders (and prying media) to see.

And beginning Aug. 23, the SEC will require public companies to disclose management contracts and compensation plans for, and awards to, their senior executives within four business days of entering into the contract or agreement. Compensation decisions, often never fully disclosed, will now have to be made with a view toward shareholder and media reaction.

Each business publication chooses its own way to use some or all of the information supplied in the proxies, which accounts for the wide disparities among the publications as to who’s making the most.

Although many business journals and magazines include restricted stock awards in their calculation of total compensation, the Northwest Arkansas Business Journal does not.

Had Scott’s restricted stock awards been counted, his compensation would have a total of $15.4 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 received, their future value can only be estimated. Long-term, however, that type of compensation can be more valuable than stock options.

Fortune-ate Ones

The highest-paid executive on last year’s list, Wayne Garrison, chairman of J.B. Hunt Transport Services Inc., pulled in $11.7 million. But in 2003, with compensation of $641,479, he slid to No. 42. Most of his 2002 compensation — about $11.4 million — is the value he realized from exercising stock options.

For 2003, No. 1 Scott nearly doubled what he made the year before, when he managed but $4.7 million. While his $1.2 million salary rose only a bit, he got a $4.2 million bonus, a million more than in 2002, and he also exercised stock options worth $2.9 million.

Arkansas’ other Fortune 500 companies, Tyson Foods Inc., Alltel Corp., J. B. Hunt, Murphy Oil Corp. and Beverly Enterprises Inc., dominated the top 10 on this year’s list. Dillard’s Inc., the state’s other billion-dollar company, barely missed as president Alex Dillard came in 11th with compensation totaling $2.2 million.

Last year’s list included the total compensation of 109 public company executives. This year, with the loss of public companies such as Brass Eagle, Cannon Express and Superior Financial, the list has only 97 executives.

The compensation among those 97 execs averages $915,122. Taking just their salaries and bonuses, the average came to $689,571.

The median pay package (half make more, half less) for the 97 execs is $500,239. If just the salary and bonus are counted, the median compensation is $360,000.

Since the average income of Arkansans is a shade over $28,000, the top executives are making about 32 times that, but that’s still a far cry from national figures.

National Numbers

In 2003, the CEOs of the country’s largest companies earned more than 300 times the salary of an average factory worker, according to an article in the St. Petersburg Times.

From 1990 to 2003, the article said, CEO pay rose 313 percent, the stock market gained 242 percent, corporate profits climbed 128 percent and the average worker’s pay increased 49 percent. That’s just ahead of inflation, which rose 41 percent in the same period.

The chief executives in Business Week’s 54th annual Executive Pay Scoreboard saw their average salary, bonus and long-term compensation increase 9.1 percent last year to $8.1 million.

Executives responsible for multibillion-dollar companies can rightly command big salaries. Companies say a good compensation package is very important in attracting and keeping good executives.

But executive pay is undergoing some changes, brought about by SEC reforms that call for a more accurate accounting of executive perks.

Much of those reforms are the result of the high-profile bankruptcies and financial scandals of past years, and the SEC said the reforms are needed to restore investor confidence.

Stock options were the big way to wealth during the ’90s when stock prices were on the rise. The SEC and the Financial Accounting Standards Board, however, maintain that there is an expense associated with stock options and that should be reflected in the company’s profit-and-loss statement.

Many of the nation’s larger companies are falling in line with that, and as a result, the number of executives receiving stock options has declined, while restricted stock awards have gone up.

Proponents of awarding restricted stock say it keeps executives focused on long-term company performance better than stock options do. A problem with reporting options in executives’ total compensation packages is that estimates of the “fair value” of new stock options don’t really tell how much cash executives will receive.

More than 500 companies have voluntarily started expensing the cost of stock options. Some have started paying their CEOs with actual shares of stock only if they meet performance benchmarks.

Despite the new executive compensation scrutiny, CEOs most likely will find new sources of perks. And the boards of directors who have the responsibility of setting those pay packages will help them, if they want to keep the most talented people. But they’ll also be expecting those execs to deliver top performance.