That's a lot of clams
It takes the salaries of 131 workers in the state to equal the
median pay of the 50 best-paid executives at Colorado's public
companies. The gap has doubled since 2002, when it was 67-to-1.
By David Milstead
Rocky Mountain News
Sunday, May 6, 2006
Colorado incomes are rebounding after the recession. But
Colorado executive pay is skyrocketing.
• The median compensation among 50 top-paid executives
in 2005 was $5.34 million, up 40 percent from 2004.
• The cutoff to make the list is $3.27 million, up from
$2.57 million in 2004 and $1.96 million in 2003.
• The median pay for all the executives studied -- 262
for 2005 -- was $1.21 million, up an eye-popping 59 percent from
• 147 executives took home at least $1 million before
taxes. That's up from 115 in 2004, 101 in 2003 and 92 in 2002.
By contrast, the average annual wage in Colorado in the first
three quarters of last year was $40,959, up 4.1 percent from the
same period the year before. Colorado executives' good fortunes
mirror the national trend for executive pay. Multiple national
surveys reported double-digit pay gains in 2004. Surveys of 2005
pay released so far indicate more increases.
CEOs at the nation's largest companies now earn roughly 400 to
500 times the pay earned by the average worker, according to
some estimates. That's believed to be the widest gap in the
And it's expanded markedly since the early 1980s, when the ratio
was 42-to-1, according to the Institute for Policy Studies, a
think tank that says it promotes issues such as peace, justice
and the environment.
"There are no signs of boards deciding that they would like to
close that gap," said Paul Hodgson, a senior research associate
at The Corporate Library, a Maine-based group that analyzes
compensation at top U.S. corporations.
"Every time the differential widens, I think it tends to
galvanize opposition to CEO pay levels."
CEOs reap options profits
The Rocky Mountain News looked at the 50 most valuable
public companies in Colorado, as determined by market
capitalization, examining the pay for all executives, CEO and
below, who were listed in the compensation tables in the annual
proxy to shareholders.
Profits on stock options were counted as part of total pay.
Many of these stock options were granted years ago -- 10 years,
in some cases -- and don't reflect the current decisions of
boards of directors.
They do, however, reflect three years of rising stock markets
and the healthy option profits that result.
The Bloomberg Rocky Mountain News Index increased 42 percent in
2003 and roughly 17 percent in each of the past two years.
The 262 executives in the News' pay survey racked up a
total of nearly $244 million by exercising stock options in
2005. By year's end, they still had $916 million in options
left to use.
Two Colorado executives powerfully illustrate the long-term
benefit of stock options.
Aleron H. Larson Jr., a former Breckenridge attorney, spent most
of the past 30 years in the oil and gas industry, serving as
chairman or CEO of a number of companies. He settled in quietly
in 1987 at Denver-based Delta Petroleum, where he served as
chairman until July 2005.
For much of Delta Petroleum's life as a public company, its
stock lagged, dipping below $2 in late 1998. About that time,
the company's board decided to "re-price" the executives' stock
options, cutting the exercise price to 5 cents per share for
Larson's 559,000 options. The company also extended the time
before the options would expire.
That was enough time for the company's shares to rise and trade
between $13 and $15 in the company's last fiscal year, ended in
June 2005. Larson exercised 1.2 million options -- his
re-priced options, plus others granted him over the following
years -- for a profit of $13.8 million.
"The stock has gone up dramatically, he retired, and he
exercised his options," said Dave Donegan, the company's vice
president of corporate communications. Donegan couldn't comment
on the board's 1990s-era decisions.
Edward A. Labry III of First Data Corp. isn't technically a
Colorado executive. He was president of Concord EFS, the
Memphis, Tenn.-based transaction-processing company, before
First Data acquired it in 2004.
The company kept Labry on as president of subsidiary First Data
Commercial Services. And it inherited the obligation to
eventually pay Labry for the 16 million Concord stock options
he'd accumulated in his nearly 20 years at the company.
When the merger closed, Labry was the proud owner of 6.4 million
First Data stock options. And he used 1.45 million of those in
2005 for a pretax profit of $37.7 million. At year-end 2005, he
had $62.3 million worth of options to go.
Option profits contributed roughly half the pay of the two
executives at the top of the News' annual list, David
Mandarich and Larry Mizel of MDC Holdings. Each executive
claimed roughly $20 million from their stock options on their
way to total pay that topped $40 million for each of them.
Moving to restricted stock
It will take a long time to work these options out of the pay
system. But companies are setting the stage for a much
different compensation scenario in the long term.
For most of the 1990s, companies offered up bucketloads of
options as compensation for their executives. Accounting rules
did not require companies to reflect any expense for the options
in their net income. It was like free money, particularly when
rising share prices lifted all executive boats, whether the
companies outperformed the broad market averages or not.
But the implosion of the tech sector, followed by the Enron and
WorldCom accounting scandals, gave new life to the movement to
expense stock options. Investing legend Warren Buffett noted,
"If options aren't a form of compensation, what are they? If
compensation isn't an expense, what is it? And if expenses
shouldn't go into the calculation of earnings, where in the
world should they go?"
So companies began a move back to once-popular "restricted
Restricted stock shares "vest," or become usable, only over time
-- say in three to five years. Sometimes the stock vests early
if performance targets are met. And sometimes the stock doesn't
vest at all if a company's performance falls short.
Mark Sexton, the CEO of Evergreen Resources until its 2004 sale,
took no cash compensation when he joined the Denver-based
clean-coal company KFx in 2005. He did, however, get 1 million
shares of restricted stock -- worth $14.2 million -- on the day
of the grant. He needs to stay seven years for the stock to
Unless, that is, KFx hits some very significant targets -- the
average closing price of KFx common stock must equal or exceed
$45.05 per share for 90 consecutive calendar days, or annual
revenue must increase to $1 billion, or annual net cash flow
must increase to $250 million. Those are long-term goals for a
company that, in fiscal 2004, posted $28,000 in revenue and
operating cash flow of $494,000.
Colorado executives received $151.3 million in restricted stock
in 2005 -- more than double 2004's amount and nearly as much as
in all three previous years combined.
But option grants are not falling off nearly so quickly. Of the
262 executives in this year's study, 167 received options.
That's down from 173 in 2004 and 190 in 2003.
All told, they received 28.3 million options. That's the
biggest option total in the past three years. Thirteen execs
got at least 500,000 apiece, and four of those got at least 1
million, led by Qwest CEO Dick Notebaert.
Design of pay plans improves
Compensation consultants, the advisers who assist corporate
boards in these decisions, say there's been a marked improvement
in the design of pay plans.
Don Sagolla, a pay consultant for Mercer in Los Angeles, said
his firm compared company financial performance with executive
compensation and found links. Lagging firms were in some cases
cutting total pay or giving no salary increases.
"What's been happening . . . is more transparency and more of a
premium on pay for performance," Sagolla said.
But the continuing rise in the stock market, and the executives'
stock-option profits from long-ago option grants, make it
difficult to evaluate the claim when executives' take-home pay
is examined. One thing that continues to rile investors,
however, is multimillion-dollar payouts at companies that have
seen declining financial and stock performance.
"The shareholder mind-set remains very much, great performance
deserves great pay," said Kevin Cameron, the president of San
Francisco-based proxy-advisory firm Glass Lewis. "It's only
when the two diverge that the shareholders really want to stick
up their hands."
The AFL-CIO has increasingly monitored executive pay and
launched a Web site at
"There is still a continuing disconnect between CEO pay and
performance, and a growing reliance on hidden forms of
compensation, including retirement benefits and perks," said
Brandon Rees, an analyst at the AFL-CIO's investment office.
"We need more board accountability."
Top 50 in Colorado executive compensation
Search Colorado's 262 top paid executives
To the chief of a big publicly traded company, it's pocket
change. To an average worker, the value of a perk is huge,
often more than an annual salary. Here are a few of the
sundries given to executives in Colorado, based on a review of
Dick Notebaert is swimming in perks. Qwest's chief executive
received $1.1 million in "other compensation," including
$462,500 for personal use of a plane, $75,000 in "flexible
benefits" that can be used for a perk of his choice, financial
consulting and a personal assistant.
• First Data
Henry Duques, the chief executive officer, benefited from car
and apartment lease expenses of $33,787 and financial planning
services valued at $50,598. First Data's former boss, Charlie
Fote, received $46,000 for country club fees, $17,500 for
personal use of a jet and $30,300 for financial planning
• Janus Capital Group
Chairman Steve Scheid was compensated $13,210 for a leased car,
while Chief Executive Gary Black was reimbursed $121,600 for
housing. The company paid $18,800 for Black's personal use of
• Red Robin
Chief Executive Dennis Mullen was repaid for travel expenses to
commute from his Arizona home to the company's base and for a
furnished apartment in Denver. The commuting costs came to
$46,000, while the company paid $32,600 to cover taxes related
to those costs. Red Robin also gave him a car allowance valued
Chairman and CEO Charlie Ergen spent a lot of time in the air.
The company put the price tag of his personal use of a plane at
• Liberty Global
Gene Musselman, president of the company's UPC Broadband
division based in the Netherlands, received $276,000 in other
compensation, including a cost-of-living differential, a car
allowance -- even tuition for his children.
• Centennial Bank
The company covered the following perks for David Boyles, its
president: $1,980 for garage parking, $1,586 for use of a car
owned by the company and $7,077 for club memberships. But the
company said in the third quarter of 2005 it stopped reimbursing
executives for club membership dues.
Harvey Wagner, the top officer, reeled in total pay of $833,500
last year, according to the company. But he didn't use any of
that to cover his "living expenses," a bill of $78,000 paid by
Nearly $79,000 to cover travel expenses for three executives --
and their spouses -- who went on a "company-sponsored sales
Staff writer James Paton contributed. David Milstead is
finance editor of the Rocky Mountain News. He can be reached at
milstead@RockyMountainNews.com or 303-892-2648.
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