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Europeans Behind U.S. In Exec Compensation

NEW YORK — The Europeans are different — at least when it comes to executive compensation.<br><br>Unlike the U.S., where high-seven-digit remuneration packages don’t raise eyebrows in many industries, fashion and apparel executives...

NEW YORK — The Europeans are different — at least when it comes to executive compensation.

This story first appeared in the July 17, 2003 issue of WWD.  Subscribe Today.

Unlike the U.S., where high-seven-digit remuneration packages don’t raise eyebrows in many industries, fashion and apparel executives notwithstanding, the Continent still lags in terms of wages, perquisites and stock options.

“European executives are not anywhere near as well compensated in terms of base salaries and bonus opportunities,” said Gregg Passin, a partner in consulting and the London office leader of Sibson Consulting. “Stock options won’t be nearly as much. In the U.K., it’s a little bit closer to the U.S. standard, but there’s still a considerable gap.”

That was apparent when a small, but vocal group of Burberry shareholders from the National Association of Pension Funds urged its members to vote against a proposal regarding management pay packages at the company’s annual meeting held Tuesday in London.

The association believes the firm’s executive pay packages are extremely generous by U.K. standards. Still, the resolution on management remuneration packages was easily passed at the meeting.

As reported, Burberry chief executive officer Rose Marie Bravo received $9.2 million, including a bonus that amounted to 86 percent of her base salary, landing her the top spot on the WWDList (see page 14). The ceo earned a $1.3 million bonus based on the attainment of internally set company targets for operating profits. She took home another $6 million as part of a long-term incentive plan set in 1998.

Hal Reiter, chief executive officer of Herbert Mines Associates executive search, said the incentive plan would not have been convertible to cash had Burberry not done an initial public offering.

According to Passin, stock options are treated differently in Continental Europe, where there are typically performance conditions attached.

“Even with performance conditions, the grants have been much smaller than in the U.S.,” he said. “Bravo’s case is a little different. To get her, Burberry had to pay that. In the U.K., executive compensation is a big issue. Firms have been hiring people from the U.S in all industries. It drives the U.K. institutional investors and the media crazy.

“The U.K. media is very shrill and they scream in headlines about compensation,” Passin added. “They are much more open to pass legislation in the U.K. to rein it in. Institutional investors and pension funds play the role of gadfly.”

Another exception to the rule is Tom Ford, creative director of Gucci, whose 2002 compensation was $4.8 million, $1.3 million of which was a guaranteed bonus. Ford, who was appointed vice chairman of the firm’s management board last year, made about $38 million over two months by buying and selling Gucci shares.

Passin noted that when Ford started, he was “not anywhere near the star he is now,” and his pay package was much smaller. “There’s speculation about what he’s going to do when his contract expires next year,” Passin said. “He’s now the face of Gucci and has direct impact on the bottom line.”

Reiter noted that price-per-earnings ratios are higher in Continental Europe than anywhere else, a result of the limited number of stock options doled out to management.

“It’s good for stockholders,” he said, adding that “now all of a sudden, stock options are coming under criticism in the U.S.”

It’s easy to see why U.S. industry leaders are viewed as greedy on the other side of the pond. For the most part, compensation as a percentage of 2002 earnings in continental Europe is 2 percent or less on the WWDList. The exceptions are Tonino Perna, chairman and ceo of IT Holdings, whose take was 16.5 percent of earnings; Bravo, whose package amounted to 10.7 percent of earnings; and Gerhard Weber, ceo, and Udo Hardeik, director, of Gerry Weber AG, whose packages came to 7 and 6.5 percent of corporate earnings, respectively.

On the WWDList of U.S. apparel executives at publicly listed companies with the highest packages in 2002 (published July 10), compensation as a percentage of earnings ranged from 100 percent in the extraordinary case of Philip Marineau, ceo of Levi Strauss & Co., to 0.9 percent for Sidney Kimmel, chairman of Jones Apparel Group.

“If you add stock options and long- term incentive plans, which can be stock, restricted stock or phantom shares, then if you redefine compensation for Europeans, I still think generally, U.S. folks are better paid,” Reiter said. “Even if you take just base salary and bonus, Americans make more money pound for pound than Europeans.”

“The U.K. media is very shrill and they scream in headlines about compensation,” Passin added. “They are much more open to pass legislation in the U.K. to rein it in. Institutional investors and pension funds play the role of gadfly.”

Another exception to the rule is Tom Ford, creative director of Gucci, whose 2002 compensation was $4.8 million, $1.3 million of which was a guaranteed bonus. Ford, who was appointed vice chairman of the firm’s management board last year, made about $38 million over two months by buying and selling Gucci shares.

Passin noted that when Ford started, he was “not anywhere near the star he is now,” and his pay package was much smaller. “There’s speculation about what he’s going to do when his contract expires next year,” Passin said. “He’s now the face of Gucci and has direct impact on the bottom line.”

Reiter noted that price-per-earnings ratios are higher in Continental Europe than anywhere else, a result of the limited number of stock options doled out to management.

“It’s good for stockholders,” he said, adding that “now all of a sudden, stock options are coming under criticism in the U.S.”

It’s easy to see why U.S. industry leaders are viewed as greedy on the other side of the pond. For the most part, compensation as a percentage of 2002 earnings in continental Europe is 2 percent or less on the WWDList. The exceptions are Tonino Perna, chairman and ceo of IT Holdings, whose take was 16.5 percent of earnings; Bravo, whose package amounted to 10.7 percent of earnings; and Gerhard Weber, ceo, and Udo Hardeik, director, of Gerry Weber AG, whose packages came to 7 and 6.5 percent of corporate earnings, respectively.

On the WWDList of U.S. apparel executives at publicly listed companies with the highest packages in 2002 (published July 10), compensation as a percentage of earnings ranged from 100 percent in the extraordinary case of Philip Marineau, ceo of Levi Strauss & Co., to 0.9 percent for Sidney Kimmel, chairman of Jones Apparel Group.

“If you add stock options and long- term incentive plans, which can be stock, restricted stock or phantom shares, then if you redefine compensation for Europeans, I still think generally, U.S. folks are better paid,” Reiter said. “Even if you take just base salary and bonus, Americans make more money pound for pound than Europeans.”