BY ERICKA CHICKOWSKI
San Diego’s economy, once dependent on tourism and defense, has diversified into several moneymaking sectors, generating lofty paychecks for the region’s business leaders.
The 25 highest-paid executives in San Diego came from niches far and wide , biotechnology, energy, fast food, sporting goods and real estate.
The List, tabulated by the
San Diego Business Journal
based on 2004 cash compensation only, was topped by Stephen Baum of Sempra Energy, who earned $3.27 million. Baum was followed closely by Joseph Sorge of Stratagene Corp., Irwin Mark Jacobs of Qualcomm Inc., Gregory Lucier of Invitrogen Corp. and Robert Nugent of Jack in the Box Inc., who all earned more than $2 million in cash last year.
Though earnings were modest in comparison to Los Angeles’ top executive salaries (in 2004, Los Angeles’ top-paid executive brought home more than $71 million), The List’s executives are reaping the benefits from a corporate culture that increasingly pays its upper level managers like superstars. Of the 25 San Diego executives listed, only two received pay cuts in 2004 , Stuart Tanz of Pan Pacific Retail Properties Inc. in Vista and Walter J. Zable of Cubic Corp.
The average pay raise among these top 25 performers was 77 percent, far outpacing the average county worker’s raises last year. According to the California Employment Development Department, the typical San Diego County worker’s compensation rose by less than 1 percent last year, up to $39,149.
Those figures are characteristic of the increasing gap across the nation between executive pay and average wages, says Scott Klinger, co-director of the Responsible Wealth project at United for a Fair Economy, a Boston-based nonprofit focused on spotlighting the dangers of excessive inequality of income and wealth in the United States. Klinger said that the gap is only getting bigger.
“We continue to see this gap widen,” he said. “We went from a compensation ratio of 301-to-1 in 2003, all the way up to 431-to-1 in 2004.”
But Raymond Fife of Aon Consulting says that it all boils down to companies paying for the top performers to lead their teams, just as sports stars get far better salaries than their journeymen teammates.
“Nobody begrudges those other people in those other industries,” said Fife, the West Region director of compensation consulting for Aon. “But somehow, maybe because executives look and dress the same as us, they are criticized for their high pay.”
Fife said changes in accounting rules due to regulations such as the Sarbanes-Oxley Act are helping to improve accountability and to better tie compensation with performance.
“The changes to the accounting rules allow companies to design better performance-based equity plans because you don’t get punished from an accounting standpoint,” he said. “That is one of the long-term trends that are going to continue. We are making people more accountable to their performance.”
The trend has trickled down to the San Diego market. Much of Baum’s compensation is tied to his performance.
“All of our employees, including our top executives, have at least some of their compensation based on a pay-for-performance approach,” said Sempra spokeswoman Jennifer Andrews.
In Baum’s case, Andrews said that more than 80 percent of his compensation was based on performance metrics determined by the board of directors. His 2004 performance was marked with a highly profitable year for the company.
“We’ve made major strides in advancing our gas business, and Sempra Commodities also had a record year in 2004,” she said.
Sempra stock prices rose 22 percent in 2004 to $36.68 per share, and it bumped its revenue up by 19 percent to $9.4 billion. Baum also helped increase net income by 38 percent to $895 million.
Baum’s executive staff also benefited from the company’s solid performance in 2004, with four other Sempra staffers making The List this year.
Even when an executive’s package is riding on pay-for-performance, Klinger believes there can be problems if the board is not setting difficult goals.
“A lot of people have coined phrases such as pay for pulse,” he said. “Oftentimes the hurdles they set of executives are not very aggressive , sometimes the measurables are pretty pathetic.”
Fife said boards are getting better, are becoming more cognizant, however, about holding executives accountable for company performance.
“Directors do have to do better at raising the bar, and it is happening,” Fife said. “The trend might not change things a lot in a year or two, but we’ll likely see a difference in five or 10 years. We’re going towards an era of total transparency all in all, and it is going to be good for everyone.”
Like Sempra, Qualcomm was heavily represented with five executives on The List after a similarly successful year. The company increased its net income by 108 percent to cap off a year with $1.7 billion.
Qualcomm founder Irwin Jacobs was No. 3 on The List with $2.76 million in cash compensation.
Most indicative of San Diego’s biotechnology outlook were the newcomers to the Nos. 2, 4 and 21 spots on The List. Three biotech executives rose to the positions after being unranked last year.
Listed at No. 2, Stratagene’s Sorge made $3.21 million last year, with a 184 percent raise over 2003. Sorge was unavailable for comment, but a company representative said the new position on The List was likely due to the fact that the company went public in 2004. Before 2003, Sorge’s compensation remained undisclosed.
Invitrogen’s Lucier, No. 4 on The List, brought home $2.03 million last year. Invitrogen spokesman Gregory Weiss said Lucier’s 369 percent boost in pay last year was largely due to his ability to close a critical merger. Last year, Invitrogen acquired Connecticut-based Protometrix in a deal that is expected to generate millions more in future earnings for Invitrogen.
Further down the list, at No. 21, is Gen-Probe Inc.’s Henry Nordhoff, who wasn’t ranked the previous year.
Fife said that as the biotechnology market continues to mature, regions such as San Diego will likely be home to more high-paid biotech executives. He said to expect more executives such as Sorge, Lucier and Nordhoff to grace such lists in the future.
“Traditionally, high-tech and biotech are industries that San Diego has been strong in, and in the past, there used to be a lot of highfliers,” he said. “But with a bear market, the value hasn’t been created in those industries like it used to be. As things shift again, you’ll see these executives on top of The List.”
Ericka Chickowski is a freelance writer living in San Diego.