Hawai'i CEO's persevere despite jolt to economy

By Frank Cho
Advertiser Staff Writer

When it comes to bringing home the proverbial bacon, no corporate executive in Hawai'i did it better last year than Walter Dods, chairman and chief executive officer of BancWest Corp.

Walter Dods, Chairman/CEO, BancWest.

Michael E. O'Neill, Chairman/President/CEO, Pacific Century Financial.

James Schuler, President/CEO, Schuler Homes.

W. Allen Doane, President/CEO, Alexander & Baldwin.

Robert F. Clarke, Chairman/President/CEO, Hawaiian Electric Industries.

BancWest eventually became a wholly owned subsidiary of BNP Paribas late last year, but for most of the year it remained a separate, publicly traded company.

And Dods pocketed more than $2.8 million in salary, bonus and other pay.

Dods' pay for 2001 — up 62 percent from the previous year — made him the highest-paid chief executive of a Hawai'i-based publicly traded company last year. But thanks to a relatively strong local economy in 2000 and much of last year, Dods was not the only big earner.

Five top executives of Hawai'i public companies earned more than $1 million last year, according to filings with the Securities and Exchange Commission. Only one chief executive saw total compensation decline in 2001 — a much better performance than that among their counterparts on the Mainland.

The glimpse into compensation for Hawai'i CEOs comes as stockholders in the state's public companies begin receiving SEC-required proxy statements detailing compensation and other plans in preparation for annual shareholders' meetings. Each year, publicly traded companies are required to report the compensation packages of their top earning executives.

A review of the proxies for Hawai'i companies also illustrates the changes that have swept the business community and locally-based publicly traded companies.

While BancWest remains headquartered in Hawai'i, it no longer is a separate publicly traded company. Honolulu-based Cheap Tickets remains in the state, but was purchased by Cendant early last year and is no longer publicly traded as a separate division. Schuler Homes remains headquartered in the Islands, but was purchased by D.R. Horton and is no longer separately publicly traded. Aquasearch remains in Hawai'i, but has sought protection in bankruptcy court.

In addition, there are many public companies with significant influence in the state, but with headquarters elsewhere such as David Murdock's Dole Food Co., which is based in California but continues to have large land holdings in the Islands. Murdock saw his total compensation nearly double last year to $1.9 million.

Much of Murdock's higher pay came in the form of a $900,000 bonus based largely on the company's stock performance: Last year, Dole's stock price rose 79 percent. Murdock did not receive a bonus the previous year.

Stock values up

Publicly traded companies that are based in Hawai'i generally did fairly well last year. Most Hawai'i companies reported double-digit percentage increases in their stock prices last year: Hawaiian Electric Industries stock price has climbed nearly 40 percent since January 2000. Bank of Hawaii's stock jumped nearly 47 percent.

And here, as well as on the Mainland, pay-for-performance criteria can be seen in executive compensation.

Executive compensation is usually set by a committee within the firm's board of directors and tied to the company's financial performance and stock price. The components of an executive's compensation typically include a base salary, performance bonuses, and stock options that reward executives if the stock price reaches certain levels. Stock options allow executives to buy stock in the company at a fixed price for a set period, often lasting years.

"There is a lot of emphasis that has been placed on true pay-for-performance by shareholders," said Ed Graskamp, a Denver-based consultant and head of executive compensation for Watson Wyatt Worldwide.

But experts say that has not been the only factor driving up CEO salaries.

"Companies still need to compete with each other for top-notch talent and there is not that much top-notch talent out there," said Jack Roose, Honolulu-based consultant and expert on compensation packages.

Roose said that on the Mainland, about half of the CEOs saw pay raises last year, but the other half suffered from falling stock prices and did not increase their salaries.

"If you look at what has happened nationally, true pay-for-performance worked for only about half of the CEOs last year," Roose said.

Salaries still lag Mainland

While Hawai'i CEOs on average are not as highly paid as their Mainland counterparts, they are not particularly struggling financially. Top executives of Hawai'i's largest public corporations earned an average of $1 million in salaries, bonuses and other compensation last year, up 45 percent from the year before.

But, Roose said, "What often looks like an astronomical compensation schedule here is actually pretty commonplace on the Mainland."

The average pay of CEOs at 365 major corporations now stands at $13.1 million, up 571 percent from 1990, according to a report by the Institute for Policy Studies and United for a Fair Economy, a Boston-based organization that focuses on economic inequality.

The average chief executive officer of a major publicly traded company now makes 458 times as much in pay, bonuses and stock options as the average Hawai'i worker, according to the Institute's survey of executive salaries.

Defenders of CEO salary packages say the pay for Hawai'i's top executives has been justified by the performance of their companies over the last couple of years.

"Mr. Dods and his team have built BancWest into a more profitable and diversified regional franchise, producing record earnings," said Fujio Matsuda, chairman of the executive compensation committee for BancWest.

Matsuda said the company's solid balance sheet and 79 percent increase stock price over the last two years has justified Dods' chart-topping compensation package.

There is of course a downside for executives whose pay is tied to company performance. When performance lags, pay levels lag as well.

Pay-for-performance waning

When Hawaiian Electric Industries ran into trouble with its overseas investments and profits fell in 1999, compensation for Robert Clarke, the company's chairman and chief executive officer, dropped more than 40 percent in 2000 after Clarke failed to earn a bonus that year.

Paul Casey, president and chief executive officer at Hawaiian Airlines, has not had a pay raise or drawn a bonus since 1999 after the airline flew through tough financial years in 2000 and 2001.

And now, with the stock market and economies struggling, the trend of linking CEO pay to performance through giving stock options may be on the wane, say compensation experts.

"The overall trend is that the bloom is off the rose. We are at a a crossroads on where we are headed with stock options," Graskamp said.

Graskamp said concern about the economy and declining compensation levels for CEOs on the Mainland has more CEOs looking to take cash instead of stock options or other forms of compensation.

"We have had downturns before but the market would come roaring back each time," Graskamp said. "People now are no longer sure which way Wall Street is going to be headed with future earnings."

Reach Frank Cho at 525-8088 or at fcho@honoluluadvertiser.com.