A LIST OF CEOS: CHIEF EXECS OVERPAID; EDITOR NAMES NAMES OF THOSE HE BELIEVES FAIL TO EARN THEIR DAILY GATEAU BAVAROISE

Some CEOs are so lazy, “you have to give them stock options to get them to go in the shower.”

So says Graef Crystal, editor of crystalreport.com, who presented his list of executive pay anti-heroes and heroes for 1998 to the fall meeting late last month in San Francisco of the Council of Institutional Investors.

The anti-heroes, all chief executives: Linda J. Wachner of Warnaco Group Inc.; Sanford I. Weill and John S. Reed, Citigroup Inc.; Stephen C. Hilbert, Conseco Inc.; Michael S. Dell, Dell Computer Corp.; and Frank N. Newman, formerly of Bankers Trust Corp.

Noting that Mr. Weill and Mr. Reed share the title of co-chief executive officer, Mr. Crystal said, “Their idea of job sharing is different – you each get paid four times as much.”

Mr. Reed had been making considerably less than Mr. Weill when Citicorp Inc. merged with Travelers Group Inc.

“When they merged,” Mr. Crystal said, “the question was, ‘Do we move John up to Sandy or Sandy down to John?’ ” The decision was to move John up to Sandy, Mr. Crystal affirmed.

Concerning Bankers Trust’s Mr. Newman, Mr. Crystal said, “he was selling distressed merchandise. He didn’t have a contract. He found Deutsche Bank and got an enormous contract.” Mr. Newman’s severance package could be worth as much as $135 million. Deutsche Bank bought Bankers Trust last year.

Pay heroes for 1998 included James Q. Crowe, CEO, Level 3 Communications Inc.; Richard D. Fairbank, CEO, Capital One Financial Corp.; Robert B. Shapiro, CEO, Monsanto Co.; Herbert D. Kelleher, CEO, Southwest Airlines Co.; and Bernard Marcus, chairman, and Arthur M. Blank, CEO, Home Depot Inc.

The lower salaries received by most of these successful executives, Mr. Crystal said, “gives the lie to the idea that you have to give an executive more money to get them to work harder.”

dump the pill

In addition to highlighting pay hogs, Council members also unveiled their annual list of corporate underachievers, discussed corporate governance and pension fraud.

This year the Focus List includes 20 companies that underperformed the Standard & Poor’s 500 index and their S&P industry peer group over the one-, three-and five-year periods ended July 30.

The underperforming companies are: Advanced Micro Devices, Archer Daniels Midland Co., Autodesk Inc., Bethlehem Steel Corp., Cabletron Systems, Foster Wheeler Corp., Fruit of the Loom and Great Lakes Chemical Corp., Hilton Hotels Corp., Humana Inc., Kmart Corp., Louisiana-Pacific Corp., Milacron, Parametric Technology, Reebok International Ltd., Seagate Technology Corp., Sears Roebuck & Co., Tenneco Inc., Thermo Electron Corp. and Toys “R” Us.

Typically, the Focus List is used by big public pension funds to guide shareholder activism campaigns against big corporations for the coming proxy season.

In a discussion of takeover protections, T.J. Dermot Dunphy, chairman and chief executive of Sealed Air Corp. of Saddle Brook, N.J., told of the fight to get rid of a poison pill(a strategic move by a takeover target to make its stock less attractive to an acquirer, often involving granting of rights to existing shareholders).

It and other unfavorable shareholder provisions were inherited when Sealed Air acquired a division of W. R. Grace & Co. in 1997.

He said the company didn’t get the 80% of votes needed to get rid of the poison pill in 1998.

This year, the company wanted to eliminate the bylaw provisions that would prevent shareholders from acting by written consent, and the rule that getting rid of these bylaws requires an 80% majority vote.

The company had to adjourn its annual meeting twice before getting the required number of votes to change the bylaws on the third try, explained Mr. Dunphy. “Shareholder rights are like fishhooks. They’re hard to get out,” he said.

Part of the problem, he said, was that “there was a sense of disbelief and skepticism” on the part of experienced institutional investors, who didn’t believe that the company really wanted to get rid of the pill and did not have something nefarious in mind.

times are a-transforming

Another speaker, Patricia Dunn, chairman in Barclays Global Investors of San Francisco, said the investment industry, “is in a remarkable transformation.”

“It’s moving from a highly fragmented industry structure to a real global industry,” she said.

“The transformation from (an industry of) boutiques to a (global) industry is painful. It means a requirement for investment managers to make a fundamental choice to be either a global player or a niche player. There’s no room in between.”

She also discussed “individualization” taking place because the boom in 401(k) plans has caused “millions of people to become investors.”

“Individualization is a conundrum for the investment management industry,” she said. “The winners will be those with powerful distribution and technology.”

In the discussion of pension fund fraud, James Burton, CEO of the California Public Employees’ Retirement System in Sacramento, told a story about a Calpers employee who used personnel information at the fund and got credit cards using a member’s Social Security number. She then ran up huge bills on each of the cards.

How did the employee get caught? She used Calpers’ address when she was applying for the credit cards, and she was tracked down.

Crain News Service