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Executive Pay Package

2005 Compensation For Top-Earning Executives Grew With Stock Option Awards

By David S. Hilzenrath and Derek Willis
Washington Post Staff Writers
Monday, July 10, 2006

It was another banner year for the Washington area's highest-paid executives.

The median total compensation for the 100 highest-paid executives at local public companies rose 21.2 percent in 2005, to $6.4 million from $5.2 million the year before. While the median salary for that group increased 4 percent, bonuses climbed nearly 14 percent, the value of the typical stock option grant went up by more than 25 percent, and other forms of long-term compensation leapt by a third.

The Washington Post's annual ranking of local executive pay was topped by four chief executives who received more than $30 million each: SLM Corp.'s Thomas J. Fitzpatrick ($39.6 million); Capital One Financial Corp.'s Richard D. Fairbank ($31.6 million); United Therapeutics Corp.'s Martine A. Rothblatt ($31.1 million); and Sprint Nextel Corp.'s Gary D. Forsee ($30 million).

Just as options buoyed compensation for the top group, a decline in the awards dragged down results for others: The median total compensation package for the next 600 executives in the study fell by 3.9 percent to $642,543. Companies with executives in that group cited a variety of reasons for a fall-off in options, including failure to meet financial targets and concern about a new rule forcing companies to count the cost of stock options as an expense. The median is the midpoint in the sample.

Altogether, the more than 700 executives at 157 firms in The Post's study took home $467.5 million in salary and bonus. Their total compensation -- including options, perks and other items -- had a combined value of almost $1.4 billion, more than the budget of the D.C. public schools.

The average worker in the Washington area was making $50,000 in wages or salary as of May 2005, according to the most recent local snapshot from the Bureau of Labor Statistics. For private-sector workers nationwide, total compensation rose an average of 2.9 percent last year.

The Post's survey, based on pay disclosures filed with the Securities and Exchange Commission, includes salaries, bonuses, stock option grants, long-term awards of restricted stock and other items. It does not include the value of executive retirement plans. In the case of mortgage companies Fannie Mae and Freddie Mac, which are both behind in their annual SEC filings, executive compensation was calculated through other public disclosures. The value of stock option grants ultimately depends on future share prices. For consistent comparisons, the Post estimates the value using a standardized approach accepted by the SEC. (See accompanying articles.)

SLM's Fitzpatrick led the rankings with estimated total compensation of $39.6 million. Fitzpatrick was promoted last year to chief executive from chief operating officer of the student loan marketing firm and was awarded an estimated $31.4 million in stock options, assuming that the stock price increases 5 percent annually over the life of the options.

The company, also known as Sallie Mae, formerly operated under a government charter and has long been a generator of executive wealth. For example, in the Post's executive compensation survey for 2002, Fitzpatrick's predecessor as Sallie Mae chief executive, Albert L. Lord, ranked first and Fitzpatrick ranked second.

Sallie Mae's profit declined 27.8 percent last year, to $1.4 billion from $1.9 billion the year before. The company ranked 39th in total return to shareholders over the past five years and 44th in total return last year, among 107 Washington area companies in the compensation study that have been public for the past five years. Sallie Mae's total returns, which include stock appreciation and dividends reinvested, were 160.2 percent over five years and 4.9 percent last year.

Ranked second for the second year in a row was Fairbank, whose stock options at credit card issuer Capital One have routinely made him one of the region's most highly paid executives. Fairbank's estimated total compensation of $31.6 million last year paled beside the $105.5 million pay package that put him first in the 2001 rankings. Fairbank, chairman, president and chief executive of the company, takes no salary or bonus. His perks include a $65,000 allowance for professionals to help him manage his money.

Fairbank's 2005 total did not include the $249.3 million he reaped last year from cashing in older stock options, almost all of which were expiring.


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