Many Executives' Paychecks Swelled, No Matter How They Did

By contrast, of the 216 executives who got raises from 2003 to 2005, 27 work at companies whose shareholders lost value over that three-year period.

Lucian Bebchuk, a law professor at Harvard University and a longtime critic of executive compensation strategies, said such large and steady pay increases reflect a lack of "market-driven" behavior by boards of directors.

When boards of directors decide how much to increase an executive's pay, they aren't functioning like a shopper looking for the best eggplant at the best price at a farmers market or a corporate manager trying to set a payroll budget that relates to the company's earnings or revenue.

"There's no disincentive for a board to overpay an executive," Bebchuk said. "All they are trying to do is make their pay decision defensible, which is not the same as getting the best possible deal."

Boards of directors often use peer comparisons -- what a similarly titled executive is paid at a similar company -- to defend pay increases. Similar to using comparable sales when deciding what to ask for a home in a hot-selling neighborhood, peer comparisons lead to bigger increases in pay. Unlike home values, executive compensation never goes down, or at least it hasn't since the early 1990s.

"You can't really say what a CEO 'should' get paid because what we're looking at is not a market outcome," Bebchuk said. "In most price-setting environments the force of a market decides, but that's not happening here."

Starting from a list of more than 700 executives at Washington area companies, The Post culled the 282 executives who had not changed jobs since Jan. 1, 2003. The list includes all titled executives such as chief financial officers, general counsels and vice presidents, not just chief executives.

In every public company proxy statement, the board of directors lays out in varying detail why it paid executives what it did the previous year.

Yet it is often not the compensation discussion in the proxy that explains why a certain executive gets a raise. Executive employment contracts -- which usually range from one to three years -- often guarantee raises in salary or set a "minimum" bonus. As opposed to stock options, restricted stock and other forms of long-term compensation -- which are meant to motivate future performance -- salary and bonus are the means by which boards of directors most often reward performance.

Take the example of Scott R. Royster, the chief financial officer of Radio One Inc., the Lanham owner of radio stations. Royster's contract guarantees him a 5 percent salary raise each year he's employed. Further, the contract calls for a "retention bonus" of $750,000 for staying with the company through the end of 2004. He was paid that bonus last year, bringing his total cash pay increase to 170.4 percent from 2003 to 2006. Radio One's stockholders lost 29.8 percent of their investment during that period.

Royster will receive a $7 million retention bonus on Oct. 18, 2010, if he sticks around until then. If he quits earlier, he gets a pro rata portion of the retention bonus.

Royster pointed out that the $750,000 retention bonus was part of the contract he signed in 2000 and was paid by the company, so he in turn could pay back a $750,000, interest-free loan from the company five years ago.