Executive Compensation Amy Sachs Kellie MacMullan Meagan Mucciarone

Executive Compensation Amy Sachs Kellie MacMullan Meagan Mucciarone Paul Haines

Year Highest Paid CEO’s CEO, Company Compensation 1990 Steven Ross, Time Warner 75,000,000 1991 Roberto Goizueta, Coca-Cola 61,000,000 1992 Alan Greenberg, Bear Stearns 16,000,000 1993 George Fisher, Eastman Kodak 29,000,000 1994 Lawrence Coss, Allied Signal 34,000,000 1995 Lawrence Coss, Green Tree Financial 66,000,000 1996 Michael Eisner, Walt Disney 194,000,000 1997 Henry Silverman, Cedant 194,000,000 1998 Michael Dell, Dell Compter 94,000,000 1999 Charles Wang, Computer Associates 507,000,000 2000 Steven Jobs, Apple Computer 381,000,000

Definition Governance mechanism that seeks to align the interests of managers and owners through salaries, bonuses, and long term incentive compensation, such as stock options. Strategic Management: Competitiveness and

Executive Compensation Looking at: Pay Bonuses Performance Company makeup Stage Stores: Company and CEO

Interview with CEO Jim Scarborough, President, CEO, and Chairman of the Board—Stage Stores, Inc

Stage Stores Stage Stores, Inc – Retail Industry – 3 Department Stores: Bealls, Palais Royal, Stage – “Think Big in Small Town America” – Headquarters in Houston, TX – 362 Stores, mainly South Central – Over 1 Billion/year

Jim Scarborough CEO, President and Chairmen of Stage Stores for over 3 years 53 years old Previously CEO at: – BusyBody-Fitness equipment – Seattle Lighting-Lighting Fixture

Executive Compensation Basics Executives-Who are they? Key Employees in company CEO, CFO, COO President, VPs, Directors

What is Executive Compensation? Core Compensation Base Pay & Bonus Less than 1,000,000 due to tax implications Short term Incentives Stock Options Fringe Compensation

Issues With Compensation Packages If CEO holds over 1% of stock, hard to fire Bonuses often cause oversight of long term goals

Jim Scarborough’s Compensation Package Pay, bonuses Long-term – Company matches, defers income Stock options Car Allowance Extra Discount Life Insurance 100% paid medical plans – No deductible or premium

Who Sets Executive Comp? Different for Each Company Compensation Consultants Compensation Committees Board of Directors Shareholders

Board of Directors Is it fair for Board of Directors to determine salary? “Boards are often quite friendly with the CEOs and find it hard to impose large decreases in compensation on their friends” Boards should usually be made of outsiders to avoid much conflict Executive Compensation and Shareholder

How Stage Does It Compensation Committee – Info from Hay Associates & Hewitt Associates – Pay grades Philosophy: Brought to pay at 75th percentile to Board for Ratification

Let’s Look at Salaries Are CEOs paid based on performance? Are CEOs paid based on industry? Are CEOs paid based on company size?

Comparing Industry Salaries Retail Industry GAP NORDSTROM STAGE STORES Financial Service Industry MERRILL LYNCH JP MORGAN CHASE JANUS MUTUAL FUNDS

GAP INC TWO FOLSOM STREET SAN FRANCISCO, CA (415) 952-4400 Executive Comp Summary Paul S. Pressler President and CEO of the Company 2002 535,045 885,000 1,420,045 Gary Muto President, Gap U.S. Division 2002 770,620 1,045,385 1,816,005 Jenny J. Ming President, Old Navy Division 2002 952,109 1,291,077 2,243,186 Kenneth S. Pilot President, Gap International Division 2001 648,670 0 648,670

NORDSTROM INC 1617 SIXTH AVENUE SUITE 500 SEATTLE, WA (206) 628-2111 Executive Comp Summary John J. Whitacre Former Chairman of the Board and CEO 2000 433,333 0 433,333 Robert J. Middlemas EVP 1999 255,000 194,116 449,116 Blake W. Nordstrom President 2001 580,000 0 580,000

STAGE STORES INC 10201 MAIN ST 5847 SAN FELIPE ST STE 2600 HOUSTON, TX (713) 667-5601 Executive Comp Summary James Scarborough Chairman, CEO and President 2001 720,192 1,875,000 2,595,192 Vivian Baker EVP, General Merchandise Manager 2001 314,615 704,000 1,018,615 Michael E. McCreery EVP and CFO 2001 338,558 770,000 1,108,558 Ron Lucas EVP of Human Resources 2001 266,154 605,000 871,154

MERRILL LYNCH & CO INC 4 WORLD FINANCIAL CTR NEW YORK, NY (212) 449-1000 Executive Comp Summary David H. Komansky Chairman of the Board 2002 700,000 7,000,000 7,700,000 E. Stanley O'Neal CEO 2002 500,000 7,150,000 7,650,000 John L. Steffens Vice Chairman 1999 400,000 5,765,000 6,165,000

J P MORGAN CHASE & CO 270 PARK AVE 39TH FL NEW YORK, NY (212) 270-6000 Executive Comp Summary Douglas A. Warner Chairman of the Board 2000 700,000 13,700,000 14,400,000 William B. Harrison Chairman and CEO 2001 1,000,000 10,000,000 11,000,000

JANUS CAPITAL GROUP INC 100 FILLMORE STREET DENVER, CO (303) 333-3863 Executive Comp Summary Landon H. Rowland Chairman of the Board, President and CEO 2002 825,000 0 825,000 Thomas H. Bailey Chairman, President and CEO of JCC 2002 486,779 0 486,779

As You Can See Within each industry: Size of company does not reflect salaries of CEOs Difference between industries: Industries reflect a large pay difference to CEOs

What Do You Think: Should company size or industry type determine pay?

Does Salary High Performance? Company JP Morgan Change in Stock Price - 10/Share Gap No Change .5 Million raise in bonus - 5/Share Bonus Merrill Lynch Salary Changes 10 million bonus for merger No performance bonus up from 1 million to 7 Million Cut 28.9% jobs

CEO Compensation Citigroup Share price down 25%, Stock bonus went from 17 million to 17.9 million Bear Stearns profits rose, pay doubled to 19.6 million E*Trade Group resigned after taking 80 million pay package After pressure from investors Delta CEO gave up 9.1 in bonuses

Reasoning Board of Directors feel exec’s deserve high salary Doing good job in hard times Doing more work to manage in a bad economy

How Should Executives Be Paid? Strictly performance based? Because of responsibility ok to pay even when not performing well? What do you think?

Conclusion Executive Compensation is different Much more than just salary Always a debatable topic Ever-growing issue with the current economy

Questions?