Sandy Weill: The King Of Stock Options

Travelers Chairman and CEO Sanford I. Weill's $12.2 million paycheck last year was nothing to write home about. After all, it's less than he has made in each of the last three years--and just barely enough to place him among the 10 highest-paid chief executives last year.

Still, as pay packages go, Weill's is one of the most lucrative deals in business. It's a contract that stands in stark contrast to the $52,000 check drawn by Cabletron System Inc.'s S. Robert Levine. Travelers pays dearly for its CEO--so much so that only one other chief--Walt Disney Co.'s Michael D. Eisner--has earned more in the past three years than Weill, who has gotten $132.6 million since 1992.

To be sure, Weill has cobbled together a hodgepodge of assets--from American Can to Smith Barney Inc.--to build a highly successful diversified financial supermarket. Travelers Inc. reported a 39% rise in net income, to $1.3 billion in 1994. Few shareholders begrudge him his take. "Sandy Weill is an entrepreneur and a risk-taker," says Pearl Meyer, a pay consultant. "He is unique."

So are his rewards. The vast majority of his riches have come from an unusual "reload" feature in Travelers' stock-option plan. Every time Weill exercises an option, he receives another to replace it, at the latest market price. In 1994, Weill was given a reload on some 525,500 options. In the two previous years, he gained options on 6.9 million shares. More typical CEO option grants are in the 100,000-to-250,000 range.

OVERPAID. The upshot: Unlike most grants that are not automatically renewed, the reload feature makes option grants for Weill a near-annual event--as long as Travelers' stock rises by 20% and he holds on to the shares. Pay critic Graef "Bud" Crystal calls Weill's reloads the "Dracula option." "This option just keeps coming back to life," he says. "There's no combination of garlic, silver bullets, or stakes that will kill it."

And it has paid off big time. Including cash, restricted stock payouts, stock-option exercises, and "paper profits" on unexercised options, Weill made some $184.5 million from 1991 to 1993, according to Crystal's calculations. Average CEO pay at the 350 largest corporations during that same period totaled $14.8 million. Crystal figures that Weill was overpaid by $135.6 million. "He is dead wrong," says Travelers President James Dimon. He notes that the company's market value has risen to $12.3 billion from $1 billion in 1986 when Weill took predecessor Commercial Credit Corp. public. "Many of these options were exercised after seven years of hard work," adds Dimon. "The reload creates ownership out of options that other executives would exercise and sell."

Indeed, Weill owns 5.3 million shares of Travelers, worth more than $210 million. "If that company goes down the tubes, Sandy Weill is going to be one of the biggest victims," says Crystal. "That's not an excuse for the size of his package, but it's not a let-them-eat-cake thing, either."

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