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The 1993 Soft-Letter executive compensation survey.

Executive paychecks have always been a fascinating, emotionally charged subject. Depending on your point of view, megabuck corporate salaries are either an appropriate reward for entrepreneurship and risk-taking--or evidence of the decline and fall of Western civilization. Who can be indifferent, after all, about annual salaries that look remarkably like videogame arcade scores?

In theory, these top-level executive paychecks have always been a matter of public record, at least for companies that are publicly traded. But until recently, many companies were able to conceal executive salary data in financial reports so obscure that even Fortune Magazine complained they were "like deciphering hieroglyphics." The Securities and Exchange Commission last year finally stepped in and issued new guidelines for compensation reporting; as a result, it's now possible to make valid comparisons of payroll trends across a broad spectrum of companies.

In the last few years, moreover, almost every major software company has finally made the transition to public ownership. There are still private firms whose executive paychecks remain a secret, but only one of these companies--WordPerfect--ranks among the industry's top 20. So 1993 seems like an appropriate time for Soft.letter to begin publishing an annual executive compensation survey. This issue represents our first effort in this area, and we're eager to hear suggestions about what else might be added to next year's version.


This year's Soft.letter Executive Compensation Survey includes paycheck data on 220 executives at 49 public software companies, 38 of which also qualified as 1993 Soft.letter 100 firms. As compensation analysts often point out, executive paychecks are sometimes remarkably out of step with company profitability and growth, broad-based market trends, or any other "objective" measures of top-level performance. In reality, the top paychecks in a company more often reflect complex judgment calls by board-level compensation committees, rather than simple formulas. So it's probably not surprising that we find few big-picture trends or explicit correlations between compensation and company performance.

However, there are several other patterns that do emerge from our data:

* Raises: More often than not, top-level compensation fluctuates considerably from year to year, depending on performance, bonuses, or--sometimes--the mood of the board of directors. We were able to collect two-year salary and bonus data for a total of 125 executives; of these, 77 got raises in 1992, 41 took home smaller paychecks, and seven saw no change in earnings.

When we compare CEO raises to all other job titles, an interesting pattern emerges: CEO compensation increased and decreased at almost exactly the same ratio as everyone else's pay. Twenty-one CEOs got pay increases averaging 23% (excluding Ray Noorda's 432% raise from our calculations), and ten declined by an average of 29%. Meanwhile, 56 other executives earned raises averaging 36%, while 31 declined by an average of 21%. Chief executives in technology companies tend to be highly paid, but apparently they share very much the same fate as the rest of the management team when raises are handed out.

* The highest paid jobs: we categorized 220 operating executives by primary job function: Chief executive officer, chief operating officer, finance & operations, sales & marketing, product development, and division managers. When we compare median compensation levels for these categories, it's clear that executives with general management responsibilities--CEOs, C00s, and division managers--tend to earn more than high-level specialists in development, marketing, and operations. (This comparison probably also reflects the fact that Coo and division manager titles are more commonly encountered in larger companies, which tend to pay higher average salaries.)
 Median 1992
 Salary & Bonus

Chief Operating Officer (17 salaries) $262,145
Chief Executive Officer (49 salaries) $242,442
Division Manager (30 salaries) $204,169
Product Development (46 salaries) $176,372
Sales & Marketing (33 salaries) $166,007
Finance & Operations (45 salaries) $151,147

* Long-term compensation: In addition to annual salaries and bonuses, a substantial percentage of senior executives--40%--received some form of long-term compensation during 1992. Usually, this income is the result of gains from stock options that an executive may have accumulated over many years, so the actual amounts frequently exceed that year's regular compensation. (These gains also typically represent deferred compensation, since the options themselves may have been earned several years before they could be exercised.)

When we analyze long-term compensation according to job function, it turns out that the percentage of participation does not vary significantly from one category to another, with two exceptions: An above-average number of sales and marketing executives (55%) took advantage of long-term compensation opportunities during 1992, while significantly fewer CEOs (24%) did so. (The CEO group includes a large number of company founders, who probably don't see much benefit from acquiring options on additional stock.) But in any case it's clear that long-term compensation -plays a huge role in establishing the competitive value of pay packages for top-level software executives.
COPYRIGHT 1993 Soft-letter
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:software industry
Date:Jul 20, 1993
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