REAP AS YE SHALL SOW

By Jill Smolowe

ANGRY INVESTORS CLOSED OUT THE Decade of Greed with demands that executive compensation be tied to company performance. In other words, CEOs should pocket a bundle only if their companies make a bundle. And make a bundle they did. By laying off employees, merging and acquiring at a record pace, slicing employee health-care costs and scoring strong sales, U.S. companies enjoyed record profits in 1995.

Now CEOs are reaping what stockholders sowed. Results, as published in corporate proxy statements, are just starting to roll in, but it is already clear that a gold rush is on. Says Joan Zimmerman, executive vice president of the placement firm G.Z. Stephens: "Profits were up wildly last year; as a result, bonus increases will be up by a similar amount."

Or more, sometimes much more. For boosting the Magic Kingdom's stock price 28% and orchestrating a $19 billion merger (the second largest in U.S. history) with Capital Cities/ABC, Walt Disney CEO Michael Eisner took home a $14.8 million compensation package, outpacing his prior year's pay nearly 40%. Campbell Soup chairman David Johnson savored a raise to $6.6 million, a jump of 150%, as Campbell stock climbed more than 36%, to 60. After Rockwell International's stock price leaped nearly 50%, to 527/8, CEO Donald Beall pocketed a tidy $5.5 million, a 45% bump over '94. Charles Walgreen, of the eponymous retail drugstore chain, took a compensation hike of 82%, to $4 million, while the company stock climbed 37% for the year. On Wall Street, where the M&A frenzy made for a historic $458 billion worth of deals--up from the previous high of $347 billion just 12 months earlier--compensation experts are calculating that several CEOs banked more than $3 million.

Though only a trickle so far, the figures suggest a wave of hefty pay raises, well ahead of last year, and mostly based on the new reap-as-ye-shall-sow yardstick. "Shareholder activism has had a huge impact on executive pay," says Michael Davis of Towers Perrin, a New York City management-consulting firm.

While CEOs are no doubt preparing speeches about the relationship between risk and reward, a few statistics intrude. To wit: despite the gush of profits, stockholders didn't see a comparable leap in their dividends. And employees took home only 2.7% more in wages and benefits during the year, the lowest increase since the government began tracking compensation in '81. Though turn-of-the-century financier J.P. Morgan argued that a CEO should never make more than 20 times the average salary of a company's employees, the ratio has escalated radically in recent years. In a sample of 292 FORTUNE 500 companies, the ratio was 143 to 1 in 1992 and is now approaching 185 to 1. Says Tower Perrin's Davis: "The gap is growing. There is absolutely no question that you are seeing stark differences."

As the compensation gap grows, so does the pain gap. At a time when Americans are paying higher health-insurance premiums for more restricted services, the CEOs of health-maintenance organizations--who ordain who shall be treated and who shall not--are banking pay packages far more than double the average CEO compensation in other companies of comparable size and performance. A prime example: Daniel Crowley, CEO of Foundation Health Corp., a California-based hmo. According to one expert, Crowley's average annual compensation for the past three years was $6.1 million, besting his counterparts in other industries by 277%. Now that's a healthy profit margin.

--By Jill Smolowe. Reported by Bernard Baumohl/New York

With reporting by Bernard Baumohl/New York