Editor's
Corner
Pay for Performance
In the olden days — way back in the 1980s — there was a clear divide between the
people who owned Virginia's corporations and the people who ran them. Virginia Business
could publish The Virginia 100, our list of w ealthiest Virginians, in June then run a list of highest-paid executives in
October, and there would be very little overlap. The men (and occasional women) who
presided over Virginia's largest corporations were nicely compensated for their labors,
but they rarely made enough to rank among the commonwealth's richest residents.
Hays T. Watkins, then CEO of CSX Corp., led Virginia Business' list of highest-paid
executives in our 1986 tally. Watkins made a hair over $2 million.
Allen Neuharth, the CEO of Gannett, came in at No. 2 with nearly $1.4 million. Only four
executives across the state made more than $1 million, and the leading info-tech
executive, John M. Toups, with Planning Research Corp., earned $802,000, for 11th place.Only
14 years ago, the Virginia economy was governed by a managerial class whose interests were
often at odds with those of shareholders and owners. Although companies dispensed stock to
their senior managers, options were regarded more as a sweetener than a staple of
compensation.
Compare that with the executive compensation tables on Pages 11 and 12. Stephen N.
Case, CEO of America Online, took home an inflation-adjusted salary last year that was
smaller than Watkins' $1 million. But he racked up $158 million in stock gains, creating a
total compensation package roughly 70 times as large. (Figure in the lower tax rates on
capital gains, and Case's take-home pay fared even better.) Meanwhile, 69 other executives
made more money last year than Watkins did back in 1985.
The lines are blurring between owners and managers. A new generation of
owner-entrepreneur has risen to prominence at companies like America Online, Global
Telesystems, Circuit City, Network Solutions and Software AG Systems. In some cases, the
leading executives founded the companies. In others, they loaded up with so many stock
options over the years that they wound up owning more shares than the founders. In either
case, they don't prosper unless the company does.
Social critics may decry the widening disparity of incomes between the
"haves" and "have nots," but the system is working. Rewarding
executives on the basis of stock performance has unleashed one of the greatest waves of
wealth creation in American history, supplanting the industrial age aristocracy with
extraordinary speed.
This wealth is spreading to more people than ever, as documented in "The Options
Game," a story that begins on Page 15. Once the perk of the executive elite, stock
options have become a tool for recruiting employees. Not everyone will become a
millionaire, but tens of thousands of Virginians at least have a shot at modest wealth
even if they don't start their own companies.
The class warriors can fret all they want about the disparities in income. But I don't
hear many Virginians expressing their envy of Steve Case. We're all hoping to get a piece
of the action ourselves.
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