Posted on Wed, Jul. 09, 2008

In the world of executive pay, North Texas is getting a bargain

Tarrant County College took some heat recently after trustees gave Chancellor Leonardo de la Garza a 10 percent raise and lifted his annual pay to $325,000.

The dust-up prompted the Star-Telegram to report the salaries for a dozen top executives in local governments, school districts and other agencies.

What’s most surprising isn’t how much these leaders are paid. It’s how little, given the demands of their jobs and the difficulty in landing them.

James Spaniolo, president of the University of Texas at Arlington, topped the list at $389,000. Jeff Fegan, chief executive of Dallas/Fort Worth Airport, was next at $344,792. Lowest of the group in Sunday’s paper was Tarrant County Judge Glen Whitley at $135,189.

Most people would love to have this kind of income, but for many senior executives, it hardly qualifies as a starting point. Last year, the average compensation for the CEO of a Fortune 500 company was nearly $8.4 million, according to The Associated Press.

Bob Simpson, who heads XTO Energy in Fort Worth, got $35 million in bonuses alone in 2007. His total pay was $56.6 million, $3 million less than the year before.

Simpson’s annual pay is exceptional by any measure, and so is XTO’s profit record. Julian Day of RadioShack was paid $2.5 million last year, despite a sagging stock price and far-from-finished turnaround. (Hold those tears; Day’s 2006 pay package was valued at almost $19 million, but that was before RadioShack’s stock went south.)

You get the point: Even in North Texas, top executives in the private sector are paid 10, 30, even 100 times more than their counterparts at public agencies.

It’s an amazing gap that shows once again that CEOs live in an altogether different world, where salaries are almost obscene. Or maybe it’s a case of nonprofit and government execs simply being underpaid, even with six-figure salaries.

Their responsibilities and skill sets are similar to what’s required of CEOs in the business world. In both camps, they oversee large, complex organizations with thousands of employees, hundreds of millions in revenue and an assortment of demanding stakeholders.

Through the years, each leader also outperformed — and possibly out-politicked — dozens of rivals, as they climbed and clawed their way to the top rung.

(And if CEOs complain about being in the public eye, consider the city manager who must constantly attend public hearings and get an earful from residents.)

So what explains the enormous pay gap? Not surprisingly, it’s all about money.

"The No. 1 difference is that a private sector CEO is rewarded for return on investment," says Craig Rowley, a compensation consultant at the Hay Group who has done work for Dallas and Tarrant County governments. "Yes, they need to show integrity, good governance and consistency, but at the end of the day, the owners are interested in one thing: How much did the shareholder value go up?"

The higher the return, the greater the premium paid to the executive. And the numbers are in public view, easy to assess.

In the public sector, Rowley says, the job is to deliver services and support for the agency, such as providing educational opportunities or responding to residents.

Executives are expected to do that work well, and there’s no multimillion-dollar bonus connected with it. But when XTO makes almost $2 billion in profit, shareholders don’t mind sharing more bounty with the executive who drives the performance.

Beyond the profit motive, other factors have widened the gap considerably.

For one, publicly traded companies have grown larger and more complex, making the CEO’s job tougher. In 1965, a Fortune 100 company had $1.5 billion in revenue and was likely to be in a single line of business in the United States, Rowley says. Last year, a typical Fortune 100 company had $44 billion in revenue, plus significant operations and customers around the world.

A long bull run on Wall Street, from the mid-1980s to 2000, made the value of equity pay soar, and more companies and executives turned to stock options as the primary compensation tool. As the stakes grew, so did turnover among CEOs, along with pressure on directors to demand top performance.

In the public sector, turnover has also increased. De la Garza has been the chief of two other community college districts; the school superintendents for Arlington and Fort Worth are relative newcomers.

But there are also many government leaders like G.K. Maenius, the Tarrant County administrator who has been here almost 21 years. He is paid $209,000 a year and could probably command much more in the private sector, after overseeing 4,000 employees and an annual budget of $375 million.

Like many in the field, Maenius always wanted to work in public service. Rowley says that government doesn’t have to pay as much, because most executives thrive on the work’s psychological rewards.

"Communities are getting a tremendous bargain, considering what they pay and what the executives are capable of doing," Rowley says.

You almost never hear those terms in the same sentence — executive pay and bargain. But in this one niche, they fit.