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By Robert Hertzberg
It's good to be the king, especially of a big country. And it's not so bad to be one of the princes, either.
Chief executive officers and former CEOs accounted for eight of the 10 highest-paid technology executives last year, according to a study by CIOZone. Oracle's Larry Ellison, Hewlett-Packard's Mark Hurd and IBM's Sam Palmisano all received more than $25 million in compensation. Four other executives of those companies-two from Hewlett-Packard and two from Oracle-earned more than $12 million.
Altogether, the 50 best-paid technology executives earned $547 million in 2007, an average of $10.9 million. Only 7% of that pay came in the form of guaranteed salary, a fact that is likely to mute outside criticism that the executives' road to riches was too easy.
"If we're pretty tight with a company, and if we are getting the support we need, then God bless the CEO who's making a large paycheck," says Robert Keefe, a chief information officer who is the president of the Society for Information Management, an association of CIOs.
Two and a half years after being tainted by the options backdating scandal, technology companies have done a 180 in terms of disclosing executive compensation. No longer are big technology companies paying their executives based on a set of unspecified and largely discretionary criteria. Most now devote a dozen or more pages in their prospectuses to discussing and analyzing executive compensation, starting with listing the peer group of companies that the board of directors is using as a benchmark.
"It's no fair, anymore, if you're a $300 million company, to put HP, Cisco and Microsoft on your list," says Steve Patchel, senior compensation consultant in Watson Wyatt's Santa Clara, Calif., office. "The whole process, at every level, has become much more rigorous."
Indeed, in a new era of scrutiny for compensation committees, it is usually the big companies coming off of great years that are in a position to pay their executives the most.
In their 2007 fiscal years, Oracle's five most highly compensated executives earned a total of $77.6 million, Hewlett-Packard's $73.3 million and IBM's $52.3 million, according to those companies' prospectuses. All three companies met or exceeded internal financial goals.
Still, there are exceptions to the rule that only those who have unambiguously good years thrive. VeriSign CEO Stratton Sclavos, No. 2 on our list, earned almost $27 million thanks in part to a severance agreement he negotiated when he left the company a year ago, at a time when the company was headed into the red.
While current Securities and Exchange rules require companies to provide a single number for each executive's total compensation, that number doesn't necessarily show how much an executive pocketed in the course of a year. Some calculations are estimates and some compensation categories, like stock options, reflect rewards issued in previous years that have vested in the current one.
Still, the summary number is the best way anyone has, at the moment, of being able to compare compensation between executives, says Watson Wyatt's Patchel.
Oracle raises the accuracy issue in its latest prospectus, which says CEO Ellison made almost $35 million last year. In its prospectus, Oracle says the listed value of Ellison's 2007 option award ($23.9 million), though it adheres to SEC guidelines, does not mean Ellison realized that amount of compensation during the year. The company also defends its practice of doling out options to executives, including Ellison, saying it puts the executives in the same boat as shareholders who want to see the stock go up.
Of course, as founder of one of the world's biggest and most successful software companies, Ellison is already a billionaire many times over. And some other founders or executives who got in early at now-dominant companies have made very different decisions in terms of their pay packages.
Salesforce.com CEO Marc Benioff (an Oracle alumnus) accepted a token $10 in the company's 2007 fiscal year. Google founders Larry Page and Sergey Brin and Chief Executive Eric Schmidt all took a mere $1 in salary. So did Apple's Steve Jobs.
The truth is, when you deal with people who are either founders or have a lot of ownership in the stock, the amount of cash income they take varies greatly, says compensation consultant James Kim. "It's really up to them, whether they want to draw anything," adds Kim, head of the San Francisco office of Frederic W. Cook & Co., which has advised Hewlett-Packard, Cisco and Apple.
The volition extends to equity-based compensation. Microsoft Chief Executive Steve Ballmer declined any form of stock compensation and earned just $1,279,821 in fiscal 2007, well below the $13.9 million average of CEOs at similarly sized U.S. companies, according to Microsoft. Ballmer, however, owns more than $12 billion in Microsoft stock.
"When you're that wealthy, you can do a lot of things just out of principle," Kim says.
Microsoft is unique in some other aspects of executive compensation. The company has no severance agreements-you're on your own if you get fired there. In addition, pay at Microsoft is determined partly by input from an executive's direct reports.
Customers also have a say, since customer-satisfaction surveys help determine the number of shares each Microsoft executive receives.