Hawai'i executives rewarded in mediocre economy

By John Duchemin
Advertiser Staff Writer

Michael E. O'Neill could easily have earned more than $2 million last year as the top officer of Bank of Hawaii.

Instead, the 56-year-old chairman, president and chief executive officer of the bank chose to forgo his salary and bonus, opting instead for a package of long-term stock options. O'Neill's take-home pay last year was about $25,000, about 99 percent less than the $2.4 million he earned in 2001.

O'Neill was the exception, however, in Hawai'i's executive club. Despite a down year for the stock market and a mediocre economy, most of Hawai'i's public companies rewarded their top officers with pay increases in 2002.

Six of the nine Hawai'i companies whose stock is traded on major national exchanges gave their top officers raises between 6 percent and 98 percent, according to a Honolulu Advertiser analysis of the companies' annual financial statements.

The trend in Hawai'i stands in contrast to a national trend toward lower pay for top executives. Total compensation for chief executive officers fell 2.9 percent in 2002, according to the Wall Street Journal.

CEOs' pay rocketed in the 1990s, frequently outstripping both the booming stock market and corporate earnings growth. Companies seeking to lock in the hottest executives would reward them not only with cash but with generous stock option packages, retirement plans and multimillion-dollar severance agreements.

But since 2000, more and more attention has been paid to executive pay levels as the economy has cooled and stock prices have dropped dramatically. As dozens of companies have sought bankruptcy protection, suffered huge losses or been investigated for accounting fraud, CEOs' pay arrangements have come under intense scrutiny.

"It's just a whole new ball game," said Ed Graskamp, a Dallas-based executive compensation specialist with the consulting firm Watson Wyatt Worldwide.

A recent Watson Wyatt study found that median pay for top executives fell 32 percent in 2000 to about $1.3 million, primarily because of poor stock performance. Lately, the typical salary has risen by about 2 percent to 4 percent, said Joe Gallagher, director of executive compensation for Watson Wyatt in Dallas.

Not so in Hawai'i. With many of Hawai'i's public companies performing better than the total market in 2001 and 2002, salaries have increased more significantly. In 2001, Hawaiian Electric Industries chairman, president and CEO Robert F. Clarke, 60, saw his total compensation jump 106 percent to $1.2 million, as the company's stock price rose a relatively healthy 10.2 percent.

Last year, Clarke's pay rose again to $1.7 million, a 38 percent increase, as HEI stock dropped 3.1 percent but stayed well ahead of the broad market, which fell by much more. Much of Clarke's pay has been in the form of performance bonuses. This year, his bonus of $785,000 — more than his base salary of $653,000 — derived from the company reaching most of its earnings and operational goals, according to HEI's annual proxy statement filed with the U.S. Securities and Exchange Commission.

Clint Arnoldus, the new chairman, president and chief executive of CPB Inc., received a $1.4 million salary, 98 percent higher than that of his predecessor, Joichi Saito, who retired last year. Arnoldus, 55, may have been helped by a 55 percent increase in CPB's stock price. The company, parent of Central Pacific Bank, has enjoyed steady stock and earnings growth for more than five years.

Another Honolulu executive who saw a pay increase is Ronald K. Migita, 61, president and CEO of CB Bancshares, owner of City Bank. CB Bancshares stock has risen 39.9 percent in the last year, and Migita's pay rose 17.8 percent to $605,000.

Salaries, however, did not always advance in lock-step with either profits or stock price.

The most notable exception is O'Neill, who joined the bank in 2000 and said he wanted to show "a willingness to make sacrifices" as Bank of Hawaii continued a dramatic restructuring, selling off unprofitable operations and laying off a significant number of employees. O'Neill chose to take 300,000 stock options in lieu of his salary and bonus for 2002 and 2003. Other top executives were also asked to take pay cuts of about 10 percent, some in exchange for stock-option packages.

"The hope was that we would link our fortunes to those of the shareholder," he said. "If the stock goes up, then obviously we would get some benefit."

Watson Wyatt's Gallagher said O'Neill's salary strategy stretches back to Lee Iacocca, the former Chrysler executive who famously took a $1 annual salary in exchange for a hefty chunk of company stock as the automaker struggled in the late 1970s.

"I can't think of a better deal for shareholders than that kind of statement," Gallagher said. "The executive is saying, very clearly, 'If I don't perform and my management team doesn't perform, I don't expect to get paid.' I call that a gutsy executive; he is really putting himself at risk."

Some Hawai'i executives saw their pay rise even as their companies' performance lagged. At Maui Land & Pineapple Co., which took $5.7 million in losses last year, president and CEO Gary L. Gifford saw his salary rise 5.9 percent to $425,000 even as the company's stock price fell 2 percent.

Gifford, 55, has announced that he would resign, effective this spring after the annual meeting of theboard of directors, and company officials say they plan to seek a CEO who will significantly restructure operations. But in March 2002, Maui Land & Pineapple's executive compensation committee, consisting of several members of the board of directors, approved a modest raise for Gifford, saying he had reached performance goals and they wanted to keep his salary in line with industry standards, according to the company's proxy report.

Missing from this year's list is BancWest chairman and chief executive Walter Dods, the perennial highest-paid public company executive in Hawai'i. Dods' company was bought in late 2001 by multinational French bank BNP. Information on Dods' pay in 2002 was not available because the company has not yet filed its annual report, bank spokesman Gerry Keir said Thursday. In 2001, Dods, 61, earned $2.9 million.