Excellent Year for Executives

Critics of executive pay levels say in some cases such big long-term payouts represent an effort by companies to reward chief executives at a time when a rocky market has made traditional stock option awards, which only have value if a company's stock rises, less attractive.

Long-term incentive plans reward an executive if the company meets strategic or business-performance goals over several years, typically three. They typically are not based solely on stock performance. Defenders say the payouts are a better way to reward executives based on a company's long-term business performance rather than short-term stock gains.

According to the company's 2003 proxy statement filed with the SEC, the big payday was the result of the merger of Conoco and Phillips that automatically accelerated long-term incentive payments that would have been awarded in 2003, 2004 and 2005.

The second-biggest long-term incentive payout went to Robert A. Eckert, chief executive of toymaker Mattel Inc., who received $8 million for a plan covering Aug. 15, 2000, to Dec. 31, 2002. Mattel's proxy said Eckert received the maximum because the company met "performance targets relating to its long-range financial goals." The proxy also said the company planned to increase the maximum payout under the incentive plan to $12 million.

Mattel spokeswoman Lisa Marie Bongiovanni said the performance target was based on Mattel's net operating income after taxes and not including a capital charge, a figure she said is historically linked with the company's stock price. "When shareholders do well, management does well. Everyone does well together," she said.

Judith Fischer, managing director of Executive Compensation Advisory Services, a research company in Alexandria, called the increase in long-term payouts a positive trend as long as the awards are based on objective criteria, such as return on invested capital.

"I think it's an excellent turn of events. For the last few years too much corporate effort has been spent focusing on the share price rather than on the company's overall well-being," Fischer said.

Problems arise, critics say, when compensation committees institute vague criteria or find ways to award big payments even if certain targets are not met.

In several instances in 2002, companies lowered performance targets for incentive payments or awarded the payments even if existing targets weren't met. According to the report, for instance, Continental Airlines Inc. altered its long-term incentive pay program in 2002.