Top Execs Take Home An $8,600 Raise

 

Among various newly instituted incentives cited by survey respondents are these:

* An annual pretax profit pool: any pretax earnings that exceed 25% of "managed assets" (inventory, receivables, etc.) will be split evenly by four key managers (marine hardware manufacturer)

* A bonus plan based on percentage reductions in direct operating costs (structural steel contractor)

* Establishment of a pay plan tied to personal productivity ratios (security systems manufacturer)

* New incentive bonuses for daily, weekly, and monthly "superstar" sales performance (video equipment wholesaler)

Finally, the shift from discretionary bonuses to short-term, performance-based incentives will encourage the evolution of more sophisticated long-term compensation plans. New wrinkles in deferred compensation and expanded pension plans will lead the list. More than 44% of the survey respondents already offer their executives deferred pay plans, while over 36% have pension programs. The next step will be supplemental pension or retirement plans, which currently exist among only 14% of smaller companies.

Beyond deferred and retirement income, the most likely long-term additions to executive pay packages will be related to equity. The INC. survey shows that stock options are currently offered by only 5% of smaller companies. While the majority of small businesses may not jump on the employee-stock-ownership bandwagon, it's likely that more of their top executives will be picking up nonqualified stock options, dividend units, and phantom or restricted stock during the next few years.

4. Fringe benefits will continue to be a mixed -- and very conservative -- bag of perquisites. As noted, life and medical insurance plans are standard, and any modifications are likely to take the form of additional coverage and more company-paid premiums. Elimination of deductible mental and dental plans, reimbursement of uninsured medical expenses, and unlimited payouts under major medical will become common.

Any new wrinkles in smaller company fringes will probably involve such benefits as company-paid physicals, financial and legal counseling, and more liberal vacation policies.

Two factors support the conservative outlook for executive perquisities in smaller companies. One is management itself, which will continue to give cash-related compensation top priority. As a result, the value of discretionary benefits is likely to remain less than 10% of total remuneration. The other factor -- far more significant -- is Uncle Sam's perennial war against nontaxable perks. Any that are discovered will suffer the same dismal tax fate imposed on business travel, company cars, clubs and resorts, and low-interest loans.

Ninety-six percent of the respondents to the INC. survey represent small private companies. Is executive compensation any different in small publicly held firms? To help answer that question, INC. chose a random sample of publicly held companies with sales of up to $25 million. Beginning on page 40, it lists top officers of those companies with information about the amount and nature of their compensation. All data was drawn from company prospectuses. To facilitate comparisons, the roster is divided into four groups ranked by sales volume.

CHIEF EXECUTIVE PROFILE

(1980 average)

Total compensation $73,400

Base salary 50,800

Bonus 18,400

Compensation as

percent of payroll 23.0%

Change in base salary

1980 vs. 1981 +17.4%

Salart increase for 1981 +12.3%

Age 46

Years in position 9.5

Years with company 12.8

Equity ownership 61.8%

PROFILE OF THE TOP BRASS

(1980 Average)

Chief Chief Chief

operating exec financial exec marketing exec

Total compensation $56,800 $44,800 $49,600

Base salary 40,200 35,100 35,100

Bonus 12,100 10,400 9,000

Compensation as

percent of payroll 11.4% 8.3% 9.2%

Change in base salary

1980 vs. 1981 18.4% 17.3% 15.2%

Salary increase for 1981 10.9% 10.9% 11.4%

Age 41 42 41

Years in position 6.1 6.2 5.2

Years with company 9.3 8.6 8.0

Equity ownership 15.3 13.3 9.4

EXECUTIVE PERKS: HEALTH LEADS THE LIST

Net sales/revenues

Under $1.0 mil. to $2.5 mil. to $5.0 mil. to $10.0 mil.

Benefits $1.0 mil. $2.4 mil. $4.9 mil. $9.9 mil. or over

Medical/life

insurance Y Y Y Y Y

Dental

insurance Y Y Y Y Y

Deferred

compensation G G G G R

Pension G G G G G

Medical

Reimbursement B G G G G

Profit

sharing B B G G R

Automobile B B B G G

Employee

stock

purchase B B B B B

Supplemental

retirement B B B B B

Thrift saving B B B B B

Low/noninterest

loans B B B B B

Club

membership B B B B B

Percent of respondents

B 1-25%

G 26-50%

R 51-75%

Y 76-100%

HOW MUCH DO DIRECTORS EARN?

More than 97% of the companies that responded to the INC. survey maintain boards of directors. Those without formal boards are generally companies with less than $1 million in sales or less than 50 employees.

As the survey results show, most larger companies -- those with sales of $5 million or more -- have five or six directors, at least two of whom are outside advisers. The smaller firms (under $5 million in sales), on average, have three or four directors, one of whom is usually an outsider.

Director compensation generally includes an annual flat fee plus a fixed payment per meeting. As the table below indicates, director remuneration averages about $2,400 a year and $200 per board meeting.

Annual Percent Fee per Percent

fixed fee respondents meeting respondents

$100 or less 13.1% $50 or less 19.8%

101-300 9.2 51.100 24.3

301-500 7.9 101-200 24.3

501-1,000 15.8 201-300 10.9

1,001-2,000 22.4 301-400 5.4

2,001-5,000 19.8 401-500 9.0

5,001-10,000 11.8 501-1,000 6.3

Mean-$2,427 Mean-$218

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