TIME: Almanac 1993/TIME Almanac 1993.iso/time/050691/0506201.000

Text File | 1992-08-30 | 3.9 KB | 88 lines

                                                                                BUSINESS, Page 48

Whose Company Is This?


Shareholders hate it when a corporation gives them a piddling
return but pays the CEO lavishly. At ITT, some are rebelling.

By John Greenwald -- Reported by David E. Thigpen/New York

    Talk about chutzpah. Did ITT chairman Rand Araskog deserve the
103% raise that jacked his pay up to $11.4 million last year and
made him one of America's best-paid executives, even though his
company's profits rose just 4%? No way, say furious investors
led by the California Public Employees' Retirement System, the
largest U.S. pension fund. Calpers, which holds 1.15 million
shares of ITT stock, or about 1%, is so steamed over Araskog's
raise that it has threatened to vote to oust the company's
directors at the annual meeting next week.

    An insignificant threat? On the contrary. Institutions
like Calpers -- pension funds, insurance companies,
money-management firms -- own about 58% of ITT stock and a
majority of the shares in dozens of other major U.S.
corporations. For decades they have almost always voted for
management. If these giants turn activist -- and they are
starting to -- they will throw a profound scare into executives
and directors, potentially revolutionizing their world.

    It's easy to see why shareholders are unhappy with ITT.
Explains Calpers chief Dale Hanson: "ITT is not one of the
companies that bubble to the top when you think of performance."
That's putting it mildly. According to Graef S. Crystal, a
professor at the Haas Business School at the University of
California, Berkeley, ITT's total return to shareholders during
Araskog's 12-year tenure has been in the bottom 30% of America's
406 largest companies. Yet over the same period, he notes,
Araskog's compensation has rocketed from a level that was 87
times as great as a blue-collar worker's to one that is more
than 600 times as much. Asserting that Araskog "is one of the
most overpaid CEOs in the world," Crystal blamed ITT directors
for having "wasted the company's assets to a flagrant degree."

    ITT replied in a three-page statement that lauded the
company's performance since Araskog became chief executive. He
"has literally caused ITT to be transformed over the past
decade," the document says. Among other things, Araskog made ITT
far less unwieldy by selling off more than 200 of its 275
subsidiaries. He also helped raise the value of the company's
stock by spending nearly $2 billion to buy back shares. As a
result, the statement says, Araskog's compensation "is at a
level which is believed appropriate for bringing to ITT the
benefits which have come to the corporation under his
stewardship."

    Could the discontents topple the ITT board, which, like
most boards, is used to being re-elected by an overwhelming
margin? That seems unlikely this year. But the Calpers-led
protest could be picking up support. Neuberger & Berman, a
Manhattan firm that manages more ITT stock than any other
institution -- 2 million shares -- is not happy. Wrote Neuberger
portfolio manager Marvin Schwartz in a letter to Araskog: "One
cannot escape noting that ITT stock has been an extremely dismal
performer in the marketplace over the past 11-year period." That
sorry record, Schwartz declared, "suggests that knowledgeable
institutional investors do not think very highly of either the
company or its prospects."

    The Council of Institutional Investors alerted its members
to the ITT situation in a newsletter, adding later, "If, over
nearly a decade, a board consistently pays its executives
top-of-the-line salaries for bottom-of-the-bucket performance
. . . the matter becomes one for shareholders to address." While
such ominous sentiments may fail to unseat the ITT board, they
seem certain to shake it up.