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Deferred Compensation

The Bonus Diet

1Jun

While some of the American workforce is grappling with the possibility of being laid off, the message to the top echelon, say compensation experts, is a bit different: it's "stay longer and work harder." For senior-level executives, the invitation to stick around is coming in the form of restricted stock options, deferred raises, and even deferred bonuses, say pundits.


"Companies are really trying to strike a balance between motivating top management to create shareholder value and retaining the executives," says Yale Tauber, senior consultant in William M. Mercer's executive compensation consulting practice.


Perhaps the most dramatic example of the bonus diet trend is the double-or-nothing strategy Stuttgart, Germany-based Daimler AG used at its unprofitable Chrysler unit in the United States. Although executives technically earned bonuses, thanks to corporatewide gains in 2000, payment is contingent upon meeting turnaround targets in 2001. If executives hit the bull's-eye, they will receive the doubled 2000 bonuses on top of a 2001 bonus. "By deferring bonuses, the savings become cash for the company, and it's a great incentive for the executives," says spokeswoman Megan Giles.


Other companies have put smaller carrots on shorter sticks to keep executives on board amidst earnings volatility. Executive bonuses at Palo Alto, Calif.-based Hewlett-Packard Co. are now assessed twice, rather than once, a year. For 2000, that meant executives, including CEO Carly Fiorina, received bonuses for the first, but not the second, half of the year, reflecting the company's poor performance in the third and fourth quarters.


Chiquita Brands International Inc., in Cincinnati, which suffered a $94.9 million loss in 2000, says it will give eligible executives part of their 2001 bonuses early--60 percent of the target amount on June 30- -and distribute the balance next February. The banana company also slipped its top brass six-figure bonuses for 2000, after not offering them bonuses in 1999.


More companies are considering spreading out option allocations, says Paula Todd, a research manager at New York consulting firm Towers Perrin. "The more frequently you make grants at different prices, the less likely all options will wind up under water," she notes. In general, though, Todd takes a dim view of frequent bonus reconfiguring. -- A.N.

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