Nonetheless, his compensation package aligns his fate far more closely with that of Nuevo's shareholders than most executive compensation packages do.
At least a few boards seem determined to make pay for performance work in bad years as much as it did in good ones -- mostly, perhaps, when the pain is spread, not concentrated in the boardroom. Ford rescinded bonuses this year for some 6,000 senior managers who collectively received US$442 million in bonuses last year. In explaining the move, the company cited the deteriorating economy, market conditions and the costs of replacing Firestone tires on its cars.
The board of Campbell Soup came up with a novel way of dealing with options that were under water, or worthless, that involved neither repricing them nor issuing a slug of new options at a lower strike price -- practices that incited cries of fury last year from shareholders at other companies.
In the fiscal year ended July 31, Campbell exchanged about 4.7 million options issued in 1997, 1998 and 1999 that were out of the money for a million restricted shares that vest over a period two to four years longer than the original options.
In other words, executives who participated in the program will receive fewer shares and have to wait longer to get them.
Playing hardball
Kay says he has attended board sessions at other companies where directors are playing hardball. "I've been in 10 board meetings over the last six months where clearly 70, 80, 90 percent of outstanding stock options were under water, and there was no intention to do anything about it," he said.
Cisco's board also eliminated cash bonuses for senior executives, as did the directors of Siebel Systems. Siebel also cut executive salaries by 20 percent and froze other salaries.
The Tribune Co plans to cut salaries for its top 140 executives 5 percent starting on Jan. 1, and they will get no bonuses this year. The company will also award merit-based raises for its other 18,000 nonunion employees in stock options, not cash.
Investors are continuing to be pushy, perhaps even pushier, although their activities are sometimes less than obvious. Earlier this month, Jeffrey Steiner, chief executive of the Fairchild Corp, which makes nuts, bolts and other products used in airplane construction, was forced to defer part of his compensation after Mario Gabelli, head of Gabelli Asset Management, which controls about 11 percent of the stock, complained that Fairchild's pay packages did not match the company's performance.
Steiner and four other Fairchild executives agreed to defer one-quarter of their cash compensation for the fiscal year ended in June. Gabelli did not return calls to his office.
But some executives, perhaps aware of how they will look, are moving on their own, at least with cash. Last year, Carly Fiorina, chief executive of Hewlett-Packard, gave up her contractual rights to a minimum guaranteed bonus of US$1.25 million. Because the company failed to meet its profit targets for the year, Fiorina asked the board not to pay her the US$625,000 bonus she was promised for the second half of the year. She did, however, still take home US$2.1 million in cash.
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