Maximum Wage

Bargain Press Bosses

Graham and Sulzberger are “underpaid”—so why do they work so hard and so well?

Not every CEO is Mr. Economic Man—ready and willing to kill his mother for a quarter. There are a few good buys out there. And every so often, there’s a great buy.

Arthur Ochs Sulzberger, the CEO of the New York Times Co., is a good buy. But his competitor, Donald E. Graham, the CEO of the Washington Post Co., is a great buy.

Sulzberger’s pay package is like a doll’s house, with perfect replicas of virtually every piece of furniture ever made—but in miniature. Like all CEOs, he has a base salary. And he has a bonus. And he receives stock-option grants, notwithstanding that he is the owner of millions of his company’s shares. And he even participates in a second long-term incentive plan. So he has all the furniture that goes in the modern executive compensation house. But the total value of his pay package, which I estimated at $2.3 million for 1996, positioned him 42 percent under the market after his company’s size and its shareholder-return performance were taken into account.

It’s almost as though Punch Sulzberger wants to be a modern, up-to-date CEO, but just doesn’t have the heart to push his board for a fully competitive pay package.

God knows his board would probably give him a lot more if he’d let it. The chairman of the compensation committee is Richard L. Gelb, who used to be the head of Bristol-Myers-Squibb. In his day, Gelb, who owned a ton of Bristol’s shares, was an avid consumer of his company’s compensation products. It was the rare survey that found him on the minus side of competitive pay figures. And two of the four other members of Sulzberger’s compensation committee are also no strangers to high pay. One is John F. Akers, who was ousted as CEO of IBM. Ironically, the other is Louis V. Gerstner, Akers’ replacement. Last year, Gerstner’s pay package weighed in at a scale-busting $20.2 million.

But if you think Sulzberger is underpaid, take a look at Graham. His base salary is $400,000, and it hasn’t been raised since he became CEO back in 1991. It’s not that his compensation committee hasn’t offered him a raise, but that Graham consistently asks that his salary remain the same. He also hasn’t had a bonus for at least the last three years, again at his request. The result is that his total pay package was only $408,000 for 1996. However, he did receive some long-term incentive awards in 1995, so if we average his pay over two years, it rises to $700,000 per year. But the competitive pay level for his job, after taking account of his company’s size and shareholder-return performance, is $3 million. Hence, he is sitting 86 percent below the market if we look only at his 1996 pay, and 76 percent below the market if we average in his 1995 pay as well.

Graham’s compensation committee also is quite at home with high pay packages. It includes Daniel B. Burke, the former CEO of Capital Cities/ABC, and his brother, James E. Burke, the former CEO of Johnson & Johnson. Another member is Donald R. Keough, who, as chief operating officer of Coca-Cola for many years, watched his boss, Roberto C. Goizueta, siphon off hundreds of millions in pay from his company’s treasury. While he was at it, Goizueta took care of Keough.

There is, however, one other outside director at the Washington Post who, though not on the compensation committee, probably has a fair amount to do with Graham’s apparent aversion to high executive pay. He is Warren E. Buffett. For years, Buffett was mentor to Graham’s mother, Katharine, when she was running the company, and he is, presumably, available for further advice whenever the younger Graham needs it. In his role as CEO of Berkshire Hathaway, Buffett is just about the greatest buy in America. His pay is $100,000 per year, and he hasn’t ever changed it. His compensation committee has about as much work to do as the Maytag repairman does.

Now, the theory behind executive pay is that money motivates. The flip side of the theory, of course, is that without money, there isn’t going to be much motivation. But if the theory is correct, we ought to find Graham lying in bed, hardly able to bestir himself to call the office and check on his messages. After all, his salary is frozen, he doesn’t get a bonus, and even his long-term-incentive payouts are small and infrequent.

With his higher pay package, we might expect at least to get Sulzberger out of bed and into the office—maybe by noon. Still, he, too, would seem to be woefully undermotivated.

So how is it then, that both CEOs have performed creditably? An investment of $100 in the S&P 500 Index, with reinvested dividends, would have returned a total profit of $103 over the last five years. The equivalent figures produced by the Washington Post and the New York Times were $88 and $78, respectively—somewhat lower than the S&P return, to be sure, but not so low as to label either CEO as performance-challenged.

Indeed, if money motivates, how is it that Donald Graham, who had by far the smaller pay package, outperformed—albeit only by a little—Punch Sulzberger?

Is it possible that the size of a CEO’s pay package, or the variety of incentives it contains, doesn’t have all that much to do with whether or not that CEO’s performance is brilliant, only average, or at a level that would make him flunk out of obedience-training school? Is it possible that people like Sulzberger and Graham get up in the morning, take a shower, and then arrive in the office—early—because they like to work and because they love the work they do? What a heretical thought!