Who Makes What -- Northwest CEO Salaries Average A Tidy $714,000, But It's The Stock Options That Really Add Up

Copyright 1999, The Seattle Times Co.

Tom Matthews got a sweet deal when he took over at the financially troubled Washington Water Power, a Spokane energy company now named Avista.

The former Texaco and Exxon executive was wooed away from his job at a Houston utility a year ago with a $1 million signing bonus.

And much more.

His five-year contract also gave him $2 million in stock; a $750,000 annual salary; promises of a $1 million-a-year package to include either stock or stock options; a guaranteed cash bonus of $150,000 his first year and $300,000 his second year; and options to buy 100,000 more shares of stock.

Total value over five years: at least $12.2 million - more if he succeeds in improving Avista's output enough to raise its stock price.

Today, the company's profits are still declining and its stock is even lower than it was when Matthews took over.

Matthews, 55, didn't rank among the top five executives in this year's Seattle Times CEO salary survey. But he did rank eighth, and his pay package reflects at least two important trends:

The competition for strong executives is leading to ever-greater pay packages because new contracts with key executives are often based on "peer group" averages. Huge stock grants are becoming so routine that they often supplant salaries and bonuses as the bread and butter of an executive's pay package.

This year's survey covers 80 executives from 76 Northwest public companies with 1998 sales of at least $150 million. Executives are ranked according to total pay including salary, bonuses, stock awards, other incentive pay, stock options exercised and the value of miscellaneous perks such as life insurance and health-club memberships. In previous years, the survey has included companies with sales as low as $100 million, but as the number of successful Northwest companies has grown, the Times has increased its threshold.

Another remarkable aspect of this year's survey is the number of area billionaires or near-billionaires who don't even appear on the list.

A few examples: Paul Allen, the Microsoft co-founder, no longer runs a large publicly held company. Steve Ballmer, the No. 2 executive at Microsoft now, doesn't make the list because he isn't a chief executive. And Naveen Jain, whose red-hot Internet company Infospace has given him more than $800 million in stock, is missing because his company generated only $9.4 million in sales last year.

Overall, the Northwest's top executives made an average of $714,000 in salary and bonus and $1.5 million in total pay in 1998, including the stock options they exercised. Their salary-and-bonus packages rose an average 4.4 percent, but total compensation - largely because of stock grants - jumped 35 percent.

For every one of the top 10 executives, stock options and other stock grants made up more than half their pay, and for some more than 90 percent.

Starbucks Chairman Howard Schultz, who tops this year's list with total pay of $18.2 million, made nearly all his money by exercising stock options worth $17 million. And even as he was cashing in those shares, he was accumulating more; his board granted him another half-million shares last year, worth an estimated $31 million as they mature over the next four years (provided the stock rises 10 percent a year).

Another leader, Washington Mutual's Kerry Killinger, cashed in $3 million in options and made $4.9 million total pay. He, too, received a new block of options, 390,000 shares worth an estimated $20.4 million over three years (provided the stock rises 10 percent a year).

Stock options also drove the pay package for Cyrus Tsui, chairman of computer-chip maker Lattice Semiconductor, based in Hillsboro, Ore. Tsui cracked the top five for the third-straight year, making $6 million, two-thirds of that by exercising options.

Even some of the executives who took cuts in their base pay because their companies performed poorly eased the pain by cashing in options.

The most notable example is Phil Condit of Boeing, whose salary and bonus were cut by 25 percent because of Boeing's production problems and financial losses. Condit cashed in $1.8 million in options to boost his total pay to $3.1 million, down 17 percent from 1997.

Some executives dropped off the list this year because of mergers and acquisitions.

Last year's leader, Gerry Cameron of U.S. Bank, was bumped off the list when his company was bought by Minneapolis-based First Bank System. Cameron's $21.1 million in pay last year consisted largely of cash and stock bonuses he made for helping broker the merger. Though the new company took the U.S. Bank name, it's based in Minnesota.Cameron, 60, after serving as chairman of the new company through December, took a pre-arranged retirement and a $1 million annual pension.

Others who fell off the list because of mergers include the chief executive of Portland-based Fred Meyer, which is being acquired by Cincinnati-based Kroger, and the CEO of Eagle Hardware, which was acquired in April by North Carolina-based Lowe's.

Michele Matassa Flores' phone message number is 206-464-8343. Her e-mail address is: mmflores@seattletimes.com ------------------------------- Top raises

The following executives saw the biggest increases in their salary and bonus packages.

Executive Company Raise .

Alan James Greenbrier 242 percent . John Whitacre Nordstrom 112 percent . Mark Pigott Paccar 110 percent . Ronald Tarrant Flow International 59 percent . John Richards Potlatch 55 percent . ------------------------------- Tops in stock

Most of these executives didn't command the highest salaries and bonuses, but value of their stock holdings has increased their net worth by millions - in three cases, billions - of dollars.

Pay Value .rank CEO Company of stock holdings . 51 Bill Gates Microsoft $53.77 billion . 78 Jeff Bezos Amazon.com $7.53 billion . 18 Philip Knight Nike $4.63 billion . 79 Mark Wattles Hollywood Entertainment $312 million . 31 William Swindells Willamette Industries $212 million . 27 Timothy Boyle Columbia Sportswear $183 million . 25 Barry Ackerley Ackerley Group $180 million . 1 Howard Schultz Starbucks $164 million . 49 James Sinegal Costco $162 million . 50 Jeffrey Brotman Costco $161 million .

Note: All amounts reflect stock holdings and share prices (adjusted for splits) in effect when company proxy statements were filed. Some figures have changed. Gates' shares, for example, are now worth about $80 billion. Source: Company proxy statements ------------------------------- Stock fell, but pay didn't

Some executives were awarded a higher salary and bonus during fiscal 1998 despite declines in their company's stock price.

Executive Company Raise Stock decline .

William Peare Trendwest Resorts 11 percent -45 percent . Mark Pigott Paccar 110 percent -18 percent . Jonathan Klein Getty Images 21 percent -16 percent . Kerry Killinger Washington Mutual 16 percent -8 percent . Guy Pinkerton Washington Federal 12 percent -4 percent . Charles Barbo Shurgard 31 percent -4 percent . -------------------------------

TOP FIVE IN THE NORTHWEST

1. Howard Schultz, chairman/CEO, Starbucks (Seattle) Total compensation: $18.24 million

2. Rick Holley, president/CEO, Plum Creek Timber (Seattle) Total compensation: $9.19 million

3. Jerome Meyer, chairman/president/CEO, Tektronix (Wilsonville, Ore.) Total compensation: $6.51 million

4. Cyrus Tsui, chairman/president/CEO, Lattice Semiconductor (Hillsboro, Ore.) Total compensation: $6.05 million

5. Kerry Killinger, chairman/president/CEO, Washington Mutual (Seattle) Total compensation: $4.90 million

Total compensation includes salary, bonuses, the value of stock options exercised during the fiscal year and other perks such as 401(k) plans and life insurance. -------------------------------

Highlights, lowlights

Tom Matthews of Avista, the Spokane energy company, could win the Best Signing Bonus of 1998 award for the lucrative five-year contract he agreed to a year ago.

Here are a few other highlights from this year's Seattle Times CEO salary survey:

Best career move: Steve Rogel, Weyerhaeuser. He left one high-paying, high-profile public company, Willamette Industries, for another. In making the move, he boosted his salary-and-bonus package from $768,833 in 1997 to $1.7 million last year. He also got a one-time signing bonus of $579,536.

Best substitute pay: William Swindells, Willamette Industries (Portland). The former CEO was asked to step out of retirement in November 1997 when Steven Rogel resigned. He served as acting chief for a year and received $1 million for his services.

Best consulting deal: Robert Rubin, Western Power & Equipment (Vancouver). He resigned as chairman in August but remained a consultant and kept his $150,000 salary.

Most puzzling perk: Daniel Baty, Emeritus (Seattle). Baty takes no salary or bonus because he holds so much company stock, about $40 million worth. Yet he accepted $264 in parking fees and health-club memberships.

Most perseverant: William Sherertz, Barrett Business Services (Portland). He declined his annual cash bonus because the company has failed to "enhance stockholder value." A selfless act, but this was the fifth consecutive time he's done so.

The Let Them Eat Cake Award: Howard Schultz, Starbucks. Coffee drinkers must now pay an average 10 cents a cup more for coffee to cover the company's increased costs for real estate and labor. Meanwhile, Chairman Howard Schultz tops the Times pay list after taking $1.2 million in salary-and-bonus and cashing in $17 million in stock options.