Troubled companies wrestle with issue of CEO salary


  • Business
  • Thursday, 13 Feb 2003

NEW YORK: When the new chief executive of Kmart takes the company’s jet for personal trips, he will have to pay for it. His base salary is lower than that of the company’s former CEOs, and he got no signing bonus. 

Kmart’s board of directors, sharply criticised for not doing enough to prevent the century-old retailer from going bankrupt, showed evident restraint last month in the terms offered to Julian C. Day, its third CEO in less than a year. 

As troubled companies turn over CEOs, not every new one is getting hired on bargain terms, and some experts question whether that is a good approach. But the lavish treatment of top executives is being scrutinised and often reconsidered after last year’s string of scandals and bankruptcies. 

Day, who held senior positions at Sears and Safeway Inc before joining Kmart, will earn an annual salary of US$1mil. He’s guaranteed another US$1mil when Kmart emerges from bankruptcy. 

In contrast, former CEO Charles Conaway – whose management is now the subject of an internal inquiry – received more than US$20mil in loans, cash, shares and bonuses in his first year, and he negotiated the right to fly anywhere he wanted in the company jet. 

James Adamson, who succeeded Conaway as CEO, was granted a US$2.5mil signing bonus, and will be paid US$3.6mil after Kmart emerges from bankruptcy – which the company hopes to do by April 30. 

Now the board chairman, he arrived with a reputation as a turnaround expert after helping revive Denny’s and Burger King. 

Conaway’s package may not have been considered extravagant at the time, but many would find it outrageous in today’s climate. At least five of last year’s bankruptcies – WorldCom, Conseco, Global Crossing, UAL and Adelphia – rank among the 10 largest in US history. 

Not everyone agrees that cutting back on executive compensation is advisable when companies need a leader with skill, experience and credibility. A chief who can successfully guide a company through the bankruptcy jungle, experts say, is probably worth every cent they make. 

A princely compensation package that doesn’t seem to match performance could indicate a corporate board has fallen under the influence of the chief executive, said Harlan Platt, a finance professor at Northeastern University's College of Business Adminstration. – AP  

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