Total Compensation Rises Despite Drop in Exec Salaries

  In many ways, the trends in executive compensation in the payments industry last year were similar to those of 2004. Bonuses and stock-option grants continued to rise, but they were more likely to be tied to performance, thanks to continued U.S. Securities and Exchange Commission pressure for clearer and more comprehensive disclosure of executive compensation.
  In the payments industry, market consolidation continued, but new, alternative payment firms also sprung up and grew. So while executive opportunities in some sectors dropped, they expanded in others.
  With data supplied by Standard & Poor's, Cards&Payments analyzed the compensation of top executives from a sampling of high-profile, publicly traded payments-industry companies (see chart, page 30). The median total compensation among the executives examined was $2.7 million in 2005, up 42% from $1.9 million the previous year. The median salary was $387,508, down 3% from $400,000 in 2004.
  For another year, the compensation of Richard Fairbank, Capital One Financial Corp. chairman, president and CEO, stands out from that of his peers. His total compensation last year was $249.4 million, up 340% from $56.7 million in 2004. The increase came from the value realized from stock options exercised; he received no salary.
  Other top-paid executives analyzed racked up the bulk of their compensation by exercising stock options, too. Edward A. Labry III, president of First Data Commercial Services, received $38.9 million in total compensation last year, considerably greater than the $1.7 million he received in 2004. Leslie Muma, president and CEO of Fiserv Inc., earned $22.7 million last year, up 157% from $8.8 million.
  Views differ on whether company executives' payment packages are excessive.
  Steven Hall & Partners, a New York-based consulting firm for board executive compensation committees, recently surveyed CEOs and compensation committee members from several Fortune 1000 companies. Of the 88 CEOs who participated in the survey, including those from unnamed payments companies, only 3.4% said excessive CEO pay occurs frequently. Of the 71 compensation committee respondents, 14% said excessive pay occurs frequently.
  The median bonus among the company execs C&P analyzed was $446,744 in 2005, a 28% increase from $349,667 the previous year. Daina Di Veto, managing director of Card Resource Group, a Lynden, Ontario-based executive search firm, sees continued bonus growth this year.
  "Bonuses have started to notch up again," she says. "We've seen 33% bonus targets increased to 55%, and 60% bonus targets increased to 75%."
  But not all bonuses are automatic. "More bonuses are discretionary, or are based on company performance," says Kathryn Trott, president of Woodlands, Calif.-based e-Trott Inc. "Therefore, you may have your best year ever, but if your company does not perform well, you can be left out of the bonus game."
  Greater SEC disclosure has led to more detailed accounting. Such public reporting can have a leveling effect on compensation among executives at competing firms.
  Disclosure also makes it easier for executive candidates to understand and calculate the value of what boards offer them. "The SEC disclosure rules have led to more straightforward packages with far less ambiguity than there once was," Di Veto says.
  PUBLIC DISCLOSURE
  The respondents to the Steven Hall survey agreed that SEC-mandated increased public disclosure is a positive trend. "Everybody was generally in favor of greater disclosure," says Nora McCord, a Steven Hall consultant.
  But 92% of CEOs and 78% of board members who participated in the Steven Hall survey agreed that executive pay should not be subject to shareholder approval. "When we pushed them and asked who should control pay, very few said Congress or the SEC," McCord says, noting about one-third of the responders believed company boards should have that authority. "Shareholders elect the board to represent their interests."
  As American consumer payment preferences and industry needs shift, so do opportunities for executives, the recruiters say. "Collections and debit cards are the big winners," Trott says. "Risk management also did well."
  Di Veto says she did not generally see notable winners or losers in any particular sector this year but suggests job seekers would do well to look to the payments frontier. "The alternative-payments sectors continue to grow faster than traditional card issuers," she says, citing companies that offer stored value products for unbanked Americans and rewards programs as particularly promising.
  Industry consolidation also has executive candidates wanting to cover themselves in case of a merger or acquisition, focusing on pensions, 401(k) matching and stock buy-out plans, Di Veto says.
  Trott says consolidation means pay has remained flat among the executives she has placed. "There are fewer and fewer places for them to move to, and fewer and fewer players," Trott says. "Margins are getting thinner, and executives need to stick with the business and be held accountable."
  MORE SEARCHING
  Di Veto, however, says executives generally are moving between companies and are not staying put, so recruiting firms such as hers are doing more high-level searches. But many candidates will eschew higher pay for quality-of-life benefits such as greater company stability and the prospect of not having to uproot their families for transfers.
  Consolidation across many industries has led to concern that CEOs helping to decide the fate of their companies may do what is best for their personal instead of corporate bottom lines. McCord says boards and CEOs surveyed disagreed more about whether shareholders should approve CEO severance packages in change-in-control situations, such as mergers and acquisitions. Nearly 40% of committee members said shareholders should have a say while 21% of CEOs agreed.
  Asked whether additional change in controlling compensation for CEOs risks prejudicing corporate sales or mergers, 59% of committee members said it would while 38% of CEOs did. However they compensate executives, hiring committees are looking for charisma in top executives along with standard technical or business know-how.
  "The executives that are in demand today are the ones with superior influence skills," DiVito says. "One client calls them evangelists and insists on exemplary coaching and championing abilities on all of their senior hires. No longer is it enough to be a financial whiz, an operations guru or a marketing genius."
  PAYMENTS EXECUTIVE COMPENSATION TRENDS
   2005 2004 Change
  Median Total Comp. $2.7 $1.9 42.0%
  Median Salary $387,508 $400,000 -3.0%
  Median Bonus $446,744 $349,667 28.0%
  Median Salary & Bonus as % of Total Pay 30.8% 39.5%
  SOURCE: Standard & Poor's
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