AGENCY SPECIAL: FINANCIALS






Tipping the Pay Scale: the Top of Top





By Alan Gottesman





Bonus Babies:





Solid year for ad industry means hefty raises and fatter paychecks for chief execs heading publicly owned shops Last year was a good year to run an ad agency. Most of the high-powered chief executives running publicly owned companies made more money than they did in 1995. And while many investors holding agency shares also added to their personal wealth, there was still a slight inverse correlation between a company’s stock market performance and the size of the boss’ raise, although the statistics are somewhat misleading. True North’s chairman and ceo Bruce Mason, for example, was the only honcho to see a double-digit cut in salary and bonus, even though the holding company’s stock price jumped 16.2 percent in 1996 (and has edged up further since year-end). The Leap Group’s ceo Rick Lutterbach, on the other hand, saw his paycheck fatten by almost 50 percent, although Leap’s stock lost almost one-third of its market value. However, Lutterbach’s $300,000 salary, huge by most people’s standards, is quite small by CEO standards. In fact, even after getting a $100,000 raise, he is the lowest-paid executive in the bunch profiled here.





As usual, chief executive paydays were the fattest at Grey Advertising, where Ed Meyer grossed nearly $10,500 per day, or $14,600 if you don’t count weekends. Interestingly, his total take was down slightly from 1995, even though the company, as measured by earnings gains and the stock’s price performance, had a stellar 1996.





In some respects–including the relationship between the CEO’s pay and salaries generally–Grey Advertising looks almost like a well-established privately owned company. It almost is one. Insiders, primarily Meyer and other top executives, own significantly more than half the company’s outstanding stock.





Martin Sorrell’s apparent pay cut, taking into account only salary and bonus, reflects a slight change in the exchange rate between the British pound (the currency in which the basic data are reported) and the U.S. dollar (in which our table is denominated). In fact, WPP’s top executive actually got a small raise in Sterling terms, roughly equivalent to three-quarters of a round-trip ticket on the Concorde between New York and London.





Bob Seelert of Cordiant did get a hefty raise last year, but not the whopping 150 percent pop indicated in our table. He joined Cordiant in mid-1995; so to get a truer picture, double his $320,000 salary and $134,000 bonus for that year. After making that adjustment, Seelert’s increase appears more modest. His annual performance bonus, however, did add substantially to his bottom line, increasing to 49 percent of his salary compared to 42 percent of his pay in 1995.





Among the smaller, less-established publicly traded agencies there is a marked tendency for the CEO to forego a fat salary but to be loaded to the gunwales in stock. Leap’s Lutterbach, the low man on the payroll tally among the nine companies examined here, owns 25 percent of the company. Mark Kvamme of CKS Group, the second-lowest paid CEO last year, owns almost 13 percent of CKS. And Terry Graunke of Eagle River, the only other chief executive besides Lutterbach and Kvamme to earn less than $1 million in 1996, has a 25 percent stake in the company he founded.





After analyzing all the numbers, the closest one comes to a formula for CEO pay is that there is a statistically significant relationship between a company’s earnings-per-share growth and the top boss’ raise. Revenue growth, margin improvement and stock price performance appear unrelated.





There has been a movement within the advertising industry to put a larger portion of employee compensation on a variable basis. This gives management more latitude to control expenses if business softens; it also permits star performers to really rake it in when times are good. Although CEO pay is an imperfect indicator of the trend toward variable compensation–in many cases the bonus is guaranteed–among the nine listed executives here, payments made as bonuses amounted to 44 percent of their combined salary and bonus remuneration. In fact, the bonuses received by Omnicom’s Crawford and Interpublic’s Geier exceeded their salaries.





While the CEO job typically pays the most, it is not necessarily the cushiest. Perhaps the sweetest deal is that of outside director, especially at Interpublic. These folks each get $24,000 per year, plus $2,000 to $5,000 for serving on a committee of the board, $1,000 for each board meeting attended (there were six last year), and $1,000 for each committee meeting (there are five committees that held 27 meetings). In addition, outside directors each year receive 10-year options to purchase stock valued at $30,000 on the date of grant. On top of that, they are given 2,000 shares of stock (worth about $120,000 at recent prices) every five years. The next grant date will be June 1, 2001. Send your resume to Phil Samper, chairman of the nominating committee.











1996 CEO COMPENSATION





Ed Meyer, Grey Advertising








…..Pay ($000)….. % change





Salary…..2,300…..S&B…..-0.9





Bonus…..325…..EPS…..24.9





Total…..3,820…..Stock…..28.3





Bruce Crawford, Omnicom








Pay ($000)….. % change





Salary…..985…..S&B…..24.4





Bonus…..2,130…..EPS…..21.6





Total…..3,137…..Stock…..19.8





Phil Geier, IPG








…..Pay ($000)….. % change





Salary…..965…..S&B…..18.1





Bonus…..1,200…..EPS…..14.4





Total…..2,831…..Stock…..12.4





Martin Sorrell, WPP





Group





Pay ($000)….. % change





Salary…..1,146…..S&B…..-0.5





Bonus…..1,146…..EPS…..8.7





Total…..2,325…..Stock…..70.1





Bruce Mason, True North








Pay ($000)….. % change





Salary…..600…..S&B…..-15.3





Bonus…..400…..EPS…..-18.4





Total…..1,512…..Stock…..16.2





Robert Seelert, Cordiant








…..Pay ($000)….. % change





Salary…..801…..S&B…..150.0





Bonus…..395…..EPS…..n/m





Total…..1,245…..Stock…..20.6





Terry Graunke, Eagle River





…..Pay ($000)….. % change





Salary…..275…..S&B…..-4.8





Bonus…..150…..EPS…..nm





Total…..439…..Stock…..-49.1





Mark Kvamme, CKS Group





…..Pay ($000)….. % change





Salary…..188…..S&B…..23.6





Bonus…..160…..EPS…..230.8





Total…..351…..Stock…..-28.5





Rick Lutterbach, Leap Group





…..Pay ($000)….. % change





Salary…..300…..S&B…..49.3





Bonus…..0…..EPS…..71.4





Total…..300…..Stock…..-32.5











Copyright ASM Communications, Inc. (1997) ALL RIGHTS RESERVED





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