Dynamark Securities Center Inc., with a 1,301% growth in revenues during the same period and placing #165 on the INC. 500 list, also came up with an unusual incentive plan. The firm, a distributor of home security systems in Hagerstown, Md., had a thorny problem to solve. Dynamark is made up of two recently merged companies, and is run by all four original owners. To keep things working smoothly, says chairman Ed Cusick, they had to devise a system that would satisfy all four egos. "Compensation for key people," Cusick says, "is based entirely on the contribution that the area they manage makes to overall corporate goals. It's not tied directly to profits, because it may not be one department's fault that another department fell off." He adds, "We've been able to attract the players into this merger because they have [what amounts to] the entrepreurial freedom to run a company of their own."
As for the future, the average CEO in the survey expects to give 12% salary raises to his top officers this year. Bonuses, more apt to be discretionary, are harder to predict. Many, however, will be based on sales and profit goals, and here our CEOs are an optimistic bunch. More than a quarter say they expect sales will increase by 21% or more for fiscal '86. If a common thread runs through the INC. survey, it is that most of the companies do look to the future with optimism -- and with the expectation of having the time and energy to try out new ideas. Close to half of the survey respondents said they were already thinking about future changes in compensation programs. A performance appraisal system was highest on their wish list of companywide plans, followed by annual incentive programs for all employees. Since almost a quarter of the companies had in fact made changes in their executive compensation programs this past year, there's every reason to believe they will act on their intentions.
The survey makes clear that the more revenues a company takes in, the more its top executives take home in salary and bonus. The fact is, the gap between the chief executive officers at the top and those at the bottom has widened over the past few years. In 1980, for example, CEOs of companies in the largest range -- $10 million or more in revenues -- paid themselves roughly three-and-a-half times as much as their counterparts in the smallest companies surveyed that year, those under $500,000. This year the multiple is close to four-and-a-half. But, as the CEO of a $1.2-million service firm in Michigan might tell you, averages are only averages. This CEO didn't take a salary at all the first year of his three-year-old business. Sometimes, to finance growth, he covered the payroll himself rather than borrow from his franchisor or the bank. Why the conservative approach? "Every business has its cycles," he says. "I don't want to be in a down cycle and owe the bank a ton of money.I want to build a business here."
Percentage of survey responses by company revenues: $10 million or more, 18%; $5 million to $9.9 million, 11%; $2.5 million to $4.9 million, 13%; $1 million to 2.49 million, 21%; $500,000 to $999,000, 14%; $250,000 to $499,000, 9%; under $250,000, 14%.
In comparison to their counterparts in other industries, chief executive officers of manufacturing companies traditionally have been the highest paid, according to INC. compensation surveys. This year they've been nudged out by CEOs in the wholesale/distribution business and by those in service. (For chief marketing officers, though, manufacturing still looks to be the best bet for earning a good salary and bonus.) The CEO of a $3.6-million manufacturing firm in Michigan may be representative of the times. He pays his COO $38,000, his CFO $32,000, and his CMO $33,000. His own take? Zero. When you own 90% of a firm that's losing money or just breaking even, as he does, you lose. There's been a lot of publicity about the lower-paying service industry overtaking manufacturing in the United States. Judging from the INC. survey, however, service companies pay just fine, at least on the executive level. The CEO of a $26-million service firm in Virginia, for example, says he has no complaints with his $225,000 salary and $400,000 bonus.
Percentage of survey responses by industry: service, 44%; manufacturing, 23%; wholesale/distribution, 14%; retail, 8%; construction, 6%; other, 5%.
Top executives of private companies do best in salary and bonus in the Northeast. That fits right in with the stereotype of the region as wall-to-wall factories. And how do other regions fit their stereotypes? Well, the Midwest brings to mind farms and factories; the West and Southwest, high tech and lots of space; the Southeast, textiles and more agriculture. But look closer, and you'll find some surprises. Consider one Alabama magazine publisher who responded to the survey. With a healthy $17.2 million in sales, this CEO pays himself $240,000 in salary and a $120,000 bonus to boot. That's more than four times the average for the Southeast. Then there's the CEO of a $42-million Salt Lake City retail operation who paid himself $100,000 each in salary and bonus. That made his take more than twice the average for his region. And even though Texas has been having problems lately, one Dallas electronics manufacturer isn't hurting too badly. The CEO of this $26-million company reports giving himself a $256,000 salary and a $90,000 bonus, nearly four-and-a-half times the region's average. So much for stereotypes.
Percentage of survey responses by region: Northeast, 22%; Southeast, 14%; Midwest 34%; Southwest, 11%; Far West, 19%.
