The $2-million club

BY RICHARD J. DALTON JR. | Newsday Staff Writer

Executives receiving multimillion-dollar pay packages have more company this year.

At least 54 executives among Long Island's largest 100 public companies had compensation packages surpassing $2 million last year, up 15 percent from 47 executives in that category last year. No Queens executives passed that threshold. Other key findings of Newsday's annual executive compensation analysis:

Though most top executives fell far short of multimillion-dollar pay packages, half received at least $417,000.

The number of executives receiving stock options increased sharply, in contrast to a national downturn in the use of options as companies moved to other rewards more closely linked to performance.

Executives at three companies -- Cablevision Systems Corp., CA Inc. and North Fork Bancorp -- dominated the top 10 list for total pay.

Not all executives had a rosy year, but overall, compensation increased in line with hikes in total pay received by chief executives nationally.

On the top 10 list for total pay, compensation ranged from $6 million for Russell Artzt, executive vice president at CA, to $22.6 million for Charles Dolan, chairman of Cablevision.

Only No. 9, Michael Atieh, executive vice president and chief financial officer at OSI Pharmaceuticals, wasn't employed by one of the big three companies that grabbed the top spots.

Dolan also topped the list for the biggest one-year jump in total pay -- 989 percent -- which includes salary, bonus and options granted last year.

In fact, this is the third year in a row that four Cablevision executives have made the top 10 list. Dolan's pay wasn't disclosed last year because his $2-million pay package was topped by at least five others at the company.

Each year, public companies generally disclose five executives' pay packages -- the chief executive and four most highly paid officers who earned more than $100,000 in salary and bonus. Last year, 440 executives at Long Island's largest 100 companies met that requirement, set by the Securities and Exchange Commission. In Queens, five public companies disclosed salaries of 26 executives combined, according to the Newsday survey based on data from Salary.com, which provides compensation data, applications and services.

In addition to revealing compensation of the top five executives, Cablevision also lists salaries and bonuses of six relatives who earned six-figure salaries at the company. Cablevision, which is unique on Long Island as a large public, family-run company with eight relatives in key positions, must reveal the relatives' salaries as part of Securities and Exchange Commission requirements.

Company spokesman Charles Schueler said family members have been senior executives since the Dolans founded the company nearly 35 years ago. "Our executive compensation is fully appropriate and reflects Cablevision's excellent operating performance in 2005, while encouraging strong results in the future," he said.

The multimillion-dollar compensation packages aren't limited to Long Island's multibillion-dollar companies, or even the profitable ones.

Cameron Reid, chief executive of pharmaceuticals company Interpharm Holdings in Hauppauge, took in $2 million in compensation, about 5 percent of the company's $39 million in revenues last fiscal year, when the company had a net loss of $149,000.

Combined, the 440 executives earned $477 million, an average of nearly $1.1 million each. That's up from $431 million in total pay for 451 executives the previous year, an average of $960,000 apiece.

The majority of that compensation -- 56 percent -- went to the fifth of the executives earning more than $2 million. But the multimillion-dollar payouts certainly don't reflect the typical executive pay package locally. Half of the executives took in less than $417,000.

A third of the pay overall came from options. Options offer the chance to buy shares at a fixed price after a specified date, and holders can make a profit if the fixed price is lower than the market price when they cash in the options.

Though the value of options granted last year held steady from the previous year, executives still have many options from prior years, and they've become quite valuable.

A.F. Petrocelli, chairman, president and chief executive at United Capital, a real estate and manufacturing company in Great Neck, stands to gain $52.5 million on options he holds, topping the list.

Among the three-fifths of executives with potential gains from options, the average paper profit was $2.5 million. These are paper profits because the executives either haven't cashed in the options, or the options haven't yet vested.

Nationally, the use of options is on the decline, as companies must now treat the grants as expenses, cutting into corporate profits, compensation experts said. Furthermore, options vest over time and generally aren't tied to performance, so boards of directors have moved away from them. Last year, the number of chief executives receiving options fell 3 percent, and the value of options declined by a median of 4.4 percent, according to an analysis of 350 U.S. chief executives' compensation packages conducted by Mercer Human Resource Consulting, an employee relations and financial services company based in Manhattan.

On Long Island, however, the number of executives receiving options soared by 20 percent.

That could reflect the age and growth of Long Island companies. Bruce Ellig, an adviser to corporate boards and author of "Complete Guide to Executive Compensation," said executives at early-growth companies are more likely to get options, while mature companies tend to offer restricted stock.

Only a fifth of local executives received restricted stock, which can be yanked back in certain situations, such as if the executive quits or is fired before a certain period.

Though small, the number of local executives receiving restricted stock increased 20 percent -- double the national jump. Half of Long Island executives had an increase of 6.9 percent or more in the value of restricted stock, slightly higher than the 5.7-percent median in the Mercer survey.

There's room for growth, though. Just a fifth of local companies offer restricted stock.

As part of a move toward pay for performance, companies are considering resticted stock that vests upon the achievement of predetermined goals, such as revenue growth, instead of vesting over time, according to Diane Doubleday, global leader of Mercer's executive remuneration business.

In the national Mercer survey, the median increase in total compensation of 6.6 percent was in line with the median 6.8 percent shareholder return for the companies last year.

On Long Island, however, while median executive pay rose by 4.5 percent, the median shareholder return plummeted to a loss of 11 percent. That means that investors would have lost $11 or more last year for each $100 invested in 50 of Long Island's 100 largest public companies.

Marjorie Glover, who oversees the executive compensation and employee benefits practice at Chadbourne & Parke, a law firm in Manhattan, said compensation packages at Long Island's smaller companies probably don't receive as much outside scrutiny as those at larger companies, explaining both the increase in options and pay hikes that are out of line with total return. The majority of public companies on Long Island have less than $75 million in annual revenues.

Bonuses, however, which are based on performance, did remain flat on Long Island, compared with a 10.6-percent increase among chief executives in the Mercer survey. The median salary rose 4 percent, on par with the 3.6-percent increase in the Mercer survey.

It wasn't a rosy year for all executives: Just half of the LI executives received an increase in total pay. And, in the reverse of the richest getting richer, three-fifths of the raises went to those on the bottom half of last year's pay scale.

During the go-go 1990s, compensation among chief executives across the country sometimes soared by double-digits along with the bull market; but that came to a screeching halt when the bubble burst, said Howard Golden, senior executive compensation consultant at Mercer. In recent years, chief executives nationally have seen 4- to 6-percent increases in median total compensation, he said. The exception was a 17.1 percent jump in 2004.

The slowdown in pay hikes nationally comes after years of scrutiny over pay packages. "We know perceptions of excessive compensation have a negative impact on company performance," said Alyssa Ellsworth, managing director of the Council of Institutional Investors, a group of pension funds. "It's a red flag for us as investors that the directors may not be doing their jobs. If the incentives directors are creating are not tied to the long-term performance of the company, then what are they rewarding?"

Soon, investors will know a bit more about how executives are being rewarded for their work, information companies are often loath to reveal and do so only because of Securities and Exchange Commission requirements. The agency is overhauling disclosure requirements to make it easier for investors to decipher the exact parameters of executives' pay and perks.

"It's awfully tough to argue against a spirit of transparency," said Diane Lerner, a senior consultant at Watson Wyatt Worldwide, a human resources and financial consulting firm.

Staff writer Tami Luhby contributed to this story.