A Raise At Itt Raises Hacklesby
It seemed like a triumph of shareholder activism. Only five months ago, the California Public Employees' Retirement System (Calpers) had griped that ITT Corp. Chief Executive Rand V. Araskog was overpaid. So Calpers urged greater independence for the company's compensation committee. Within weeks, ITT agreed to amend its bylaws.
So imagine the dismay when Calpers recently discovered that in 1990, the board authorized Araskog's largest paycheck ever: $11.4 million in salary, bonuses, perks, and restricted stock. That's a 103% rise over 1989 (chart).
Calpers, which holds less than 1% of ITT stock, is threatening to oppose the election of ITT's 13 directors at its May 7 annual meeting. "It is hard for us to understand how someone can receive a substantial increase based on 10 years of dismal performance," wrote Dale M. Hanson, Calpers' CEO, in an Apr. 11 letter to ITT's pay committee.
FIRST TREMOR? If other big shareholders join the revolt, it could mark one of the first serious challenges to an executive's salary. Hanson believes that compensation is out of control. "It's perhaps the one area where the U. S. has attained superiority on a global basis," he quips. "When you see CEO pay going up and performance going down, you have to question who's minding the store."
Araskog, named ITT chairman in 1979, begs to differ. He has sold off more than 200 companies and shored up its balance sheet, says an ITT spokesman. Besides, the $11.4 million total includes bonuses paid for work over several years as well as $4.2 million in restricted stock, which doesn't vest until 1993.
Araskog is also being rewarded for his decision to merge ITT's European telecommunications business with Compagnie Generale d'Electricite of France and to sell a small stake in the venture this year. If not for that deal and another asset sale, the company's net income would have fallen by 16% in 1990--instead of a reported 4% rise. "We thought he deserved extra compensation for that," says Thomas W. Keesee, Jr., a longtime director who's chairman of ITT's compensation panel and former president of Bessemer Securities Corp. Even so, ITT's earnings per share have grown an average of only 1.8% a year since 1980, and the company's return on equity has fallen to 11.5% in 1990 from 15% in 1980. "It's a tremendous display of arrogance and insensitivity," charges Graef S. Crystal, a pay consultant. He has published a newsletter devoted to Araskog's windfall. The headline: "ITT Board to Shareholders: Drop Dead!"