Executive Compensation Out of Hand: Case Studies from OfficeMax, ServiceMaster, Baxter (OMX, SVM, BAX)

Includes: BAX, OMX, SVM
by: 10Q Detective

In 1980, a chief executive made $42 for every dollar earned by a blue-collar worker. By 1990, according to figures published by the labor federation, the AFL-CIO, that gap was $85. But the real gains in the boardroom were made in the decade that followed as firms ramped up share options. By 2000, chief executives were earning $531 for every dollar taken home by a typical worker.

Another way of looking at the growth is that the compensation given to the top five executives in a company accounted for about 10% of that firm's earnings in 2003, compared to 5% in 1995, according to a Harvard study.

There are many controversies about executive compensation. None, however, are as colorful as the unending media coverage of the other components of an executive compensation package, which may include such perks as generous retirement plans, a dental plan, a chauffeured limousine, use of the corporate jet, interest free loans for the purchase of a house—in theory, all expenditures that come out of the pockets of company shareholders.

The stock performance of OfficeMax Inc. (OMX), the nation’s third largest office supply retailer, has trailed both the S&P 500 and the S&P 500 Specialty Store indices the last two years, with an annual return of (2.81%) in 2004 and (17.54%) in 2005, compared to positive annual returns for both aforementioned indices.

The Compensation Committee of OfficeMax reviews performance by using metrics including, but not limited to, revenue, sales, cash flow, EPS, ROE, ROA, margins and cost savings achieved—the 10Q Detective notes that stock performance is not on the list of objective criteria assessed.

According to disclosures in OfficeMax’s just filed Annual Proxy Statement, the top paid executives in the last two years were the following individuals:

Mr. Christopher Milliken, who served as president and CEO, beginning October 29, 2004 until February 11, 2005, “earned