Today if you get into the executive suite, it's possible to become very wealthy, says Peter Chingos, a compensation specialist at the accounting firm of KPMG Peat Marwick. "The '90s and the '50s are worlds apart in the way executives are compensated," he says. "In the '50s an executive received a salary and nominal cash incentives, and limited opportunity to participate in stock options. Today executives participate in a wide range of ways to enhance estate-building opportunities." Chingos says that outstanding corporate performance based on such measures as return on equity, assets, or capital can easily double a CEO's base salary, which at a typical Fortune 500 company averages around $1 million a year.
In the '50s base salary was the principal form of compensation. No more than 2% of company stock was set aside for stock-option grants, and perhaps 5% of the work force received bonuses. Today, among the Fortune 1,000, 3% to 10% of company stock is set aside, with 25% of the work force eligible for bonuses. Moreover, stock compensation is given as outright awards of shares, not just options that carry little or no premium if the stock does not appreciate over the life of the option (usually 10 years).
The money in big companies may indeed be big, but working for a large corporation is riskier today than it was 40 years ago. Says Susan Rowland, a compensation specialist at the Valhalla, N.Y., consulting firm of Towers, Perrin, Forster & Crosby: "The stability of large companies is no longer what it once was. Going into the job market in 1953, you could place your bets and do it with a pretty safe feeling. The pace has moved so quickly since then that now it's harder to do."
Rowland says one prudent path to wealth would be to consider what she dubs the "halo effect." Join a large blue-chip company, where, because of the organization's size and complexity, the CEO's pay tends to be higher than the norm. "That effect carries over all the way down through the organization in the form of higher compensation," she says. She also advises entering a company in a growing industry of the future in favor of one in an industry whose best days are behind it. Yet she cautions that because of the pace of change today, a halo can quickly tarnish and a hot industry can quickly cool. Lending credence to Rowland's point, Fortune's 1953 article referred to GM as "that paragon of good management and profitability." That characterization was apt: in 1954, GM, with 60% of the domestic auto market, would hit its high-water mark.
The increasing variability of compensation also furthers risk. The Hay Group reports that as recently as 1985 just 8% of a CEO's total pay package was in long-term incentives, with 52% in base salary. Last year those numbers had shifted considerably -- to 31% and 35% respectively. Moreover, the larger the company, the higher the overall pay and the greater the amount of compensation tied to performance. In a Towers, Perrin survey last year of 270 large companies, the CEO's base salary at the 75th percentile of compensation was just 24% of total compensation. That compares with 63% at the 25th percentile.
Meanwhile, says KPMG Peat Marwick's Peter Chingos, there's an accelerating trend among large corporations to push incentive-based pay down into the ranks. Today about 95% of Fortune 1,000 companies have a stock-option program (versus about 25% 40 years ago). "At least 60 of the Fortune 1,000 give equity incentives to all employees," he says.
Chingos says equity incentives offer an effective way for large companies to retain and reward ambitious employees. They also enable the company to establish a clearer link between worker and task. As Susan Rowland puts it: "People coming out of college and into corporations today are being asked at an early age to focus on the business and what they can do to improve it. They're being asked, individually, to create value. It's a much riskier time."
That point is driven home by the relentless downsizing undertaken by corporations, and one group in particular is vulnerable. "Middle-management jobs are being eliminated far out of proportion to their numbers," says Eric Greenberg of the American Management Association (AMA). Each year, the AMA conducts a downsizing survey of its 7,000 members. While middle managers account for 5% to 8% of the total work force, they represented 19% of the layoffs over the last four years.
Greenberg says large corporations are searching for an "irreducible minimum" of employees. As a result, 63% of this year's AMA sample of 836 companies that had downsized reported they had done so more than once. He says, "You see a lot of companies announce four and five separate reductions." More startling, the number of companies reporting future layoff plans rose from 14% six years ago to 25% last year, while the number that actually downsized in the year after each survey has usually been much higher than expected, ranging from 36% to 55%. And the average number of positions eliminated by the largest companies in the survey -- those with 10,000 or more employees -- rose dramatically from 133 in 1991 to 317 last year.
One thing is clear: the large corporate pyramid of the '50s is being broken down into semiautonomous smaller pyramids, with each responsible for its own profitability. George Bailey, an organizational-change specialist at the consulting firm of Sibson & Co., says computer technology has dramatically "flattened" traditional organizations, creating a "trend toward employee empowerment and involvement." In the '50s, he says, the rule of thumb was, each manager would oversee 5 people. "Today it's one over 7, and pretty soon it will be one over 15."
