This is not to say, however, that all CEO-owners of small, closely held corporations are selfless misers. One of the big perquisites of owning a company is the ability -- entitlement, many say -- to draw upon company cash and perks in ways that might catch flak from stockholders in a publicly traded company. Stearns, for example, may not be boosting his salary, but he considers his owner status as "money in the pocket." Whether he needs $1,000, or $45,000, to help pay for a new house, "I know I can always get it."
Even fairly obvious indulgence in the area of perks is often perfectly legal, says Hay Management's Jerrold Bratkovich. "I know the president of an $11-million electronics-assembly operation whose company owns a Learjet and a yacht. The assets are worth more than the company's sales. But it's impossible to separate that person's private life from his business life, because almost everything he does has some direct or indirect effect on the company."
Vernon Indermill, CEO of Summit Reprographics Inc., an $8 million supplier of engineering and drafting supplies based in Akron, believes that that aspect of the entrepreneurial life makes salary deprivation more than palatable. "I have everything I want. I'm having a great time. I'm combining business with pleasure, and building my equity with each passing day. Who could ask for more?"
Many CEO-owners could, according to the consultants. Compensation experts who have reviewed the INC. survey results have expressed surprise at the number of perks that respondents are not taking advantage of. Tax-return preparation, for example, is essentially a business-related expense for any stockholder, and, as such, is an obvious perk that would seem to be attractive to more than the 45% who listed it. Annual physicals (26%) and supplementary life insurance (64%) represent other underutilized opportunities to legitimately pass through an executive's personal expenses to the company.
What is the most popular perk? Cars and related expenses, which, at 83%, is a category that has almost lost its "perk" label. Many companies, in fact, now think of cars as just another piece of business equipment. The perk that seems to be losing favor the most rapidly is club dues and related expenses (43%). Some companies think such status perks attract the attention of the auditors, and others simply feel the day that companies had to entertain clients for business is gone.
There are other perks cropping up to fill the gap, however -- home computers, burglar-alarm systems, and home WATS-line usage lead the list. And one of the most popular perks of all is one that nobody will own up to using: the highly illegal practice of allowing employees to make personal purchases on company accounts. As one CEO put it: "In a small, closely held company, we do some things that are marginal in terms of the tax code."
But the payoff for an entrepreneur is, in the final analysis, far more than the contents of any compensation package. When you come right down to it, says Miller, "saying that the average CEO makes $72,000 a year is grossly misleading. If that's all running a company was really worth, nobody would go into business," he says with a laugh.
THE FACTS BEHIND THE FIGURES
This report is based, in part, on an executive-compensation survey conducted by INC. and the accounting and management consulting firm of Peat, Marwick, Mitchell & Co. The survey covered executive-pay levels and policies of a broad cross-section of smaller businesses, the research for which took place in March and April 1984. A four-page questionnaire was mailed to a random sampling of 20,000 INC. subscribers. The 1,016 returns were tabulated and cross-referenced by Peat Marwick.
The respondents represent small companies in all 50 states and the District of Columbia, with 22% headquartered in the Northeast, 18% in the Southeast, 28% in the Midwest, 11% in the Southwest, and 20% in the Far West.
By broad industry category, 26% of the respondents are in business services, 23% in wholesale/retail, and 16% in durable manufacturing. Other groups are professional services (14%), construction (9%), nondurable manufacturing (8%), and finance/insurance (5%). Classified by size, 89% of the respondents generate sales of less than $10 million. The largest number of respondents (23%) report revenues of $1 million to $2.49 million. Only 5% are publicly held.
Coordinating the project were INC. senior editors Bradford W. Ketchum Jr. and Mark K. Metzger. Peat Marwick's participation was provided through its Human Resources Consulting Group, with analysis by PM Pay, the firm's compensation survey group. Technical support was supplied by partner Peter T. Chingos (executive compensation) and national partner Howard N. Miller (private business advisory services).
Complete results of the INC. survey are available in a 230-page report compiled by INC. and Peat Marwick. Confidentiality of all responses is protected. To obtain a copy, send a written request and a check for $149.50 to: John Titus, INC. Executive Compensation Survey, 38 Commercial Wharf, Boston, MA 02110.
CORRECTION-DATE: October, 1984
CORRECTION:
The charts in "The Take at the Top" (September) showing comparative compensation by company revenues, industry, and region listed two sets of figures. The boldface figures represent averages for total compensation, while the lighter face figures are averages for base salary.
