The economy might be declining, but executive pay continues to grow at a healthy paceat least at some Inland Northwest public companies.


Top executives here on average received a 12.2 percent bump in total direct compensationto an average of about $757,000during their employers 2007 fiscal year, the Journal of Business 15th annual analysis of executive pay shows. The analysis included 87 executives from 18 publicly traded companies based in the Inland Northwest, using information those companies must disclose to the U.S. Securities and Exchange Commission in their annual proxy statements.


Although as a group the executives in this years study enjoyed a substantial pay raise, far greater than the 3.3 percent increase in overall U.S. wages and benefits in 2007, there were stark contrasts among the various companies and industries included in the study. For instance, while the top five executives at Sterling Financial Corp. posted an average 65 percent jump in direct compensation last year, the six top execs at Avista Corp. saw their overall pay fall by an average of 27 percent.


Also noteworthy considering the current economic malaise is that many public companies now base their executive compensation largely on the companys performance over the previous three years, so pay recorded in 2007 often reflects more on the economy back in 2005 and 2006 than it does on whats going on in the economy today.


Total direct compensation includes salary, bonuses and other annual cash incentive pay, the annual cost of long-term incentives such as stock options and restricted share grants, other long-term pay, pension-plan changes, and perquisites. Last years analysis, covering fiscal 2006, found average total compensation of $821,000, but that included a somewhat different set of executives, some of whom have since left their posts and been succeeded by others. The average overall pay in 2006 for this years group was about $741,000.


Counting just salary and bonus pay, executives in the study received about $424,000 last year, up 11.7 percent from the salaries and bonuses paid to that same set of executives in fiscal 2006.


Interestingly, chief executive officers fared worse in average percentage pay growth than other executives. Overall, CEO pay declined nearly 9 percent last year to $1.3 million. Their combined salary and bonus pay fell an average of 5 percent, to about $709,000.


When you come on as a CEO or other top executive, you understand that it can be feast or famine, says longtime Spokane executive headhunter Jeannine Marx. If youre going to be a CEO, you have to be a risk taker, and your pay must correlate to the performance of the company.New rules


New proxy disclosure rules approved by the SEC in 2006 require companies to divulge more information about the compensation packages provided to their top executives. Among those new disclosures is the cost companies incur in that given year when granting stock options and restricted shares, as well as more information about gains in executives retirement plans. Theres also now more information on perquisites, or perks for short, and on what payments an executive would receive if he or she were to leave the company.


Hecla Mining Co., for instance, now dedicates 30 pages in its proxy statement to disclosure and discussion of executive compensation, including nearly 20 explanatory charts.


Because of the new rules, the Journal of Business in most cases no longer includes the full amount of gains from exercising stock options or newly vested restricted shares, because by adhering to the new SEC rules, companies now include the current-year cost of such gains, so adding them in again would be duplicative. Ambassadors Group Inc. CEO Jeffrey Thomas, for instance, exercised options worth $2.8 million last year, though that specific amount isnt included in his total direct compensation, rather the current-year cost of grants he might later exercise is listed.


For the executives of companies that didnt disclose under the new rules in their most recent proxies, such gains are included in their direct-pay totals.The list


Topping this years executive pay list is Potlatch Corp. Chairman, President, and CEO Michael Covey, who had overall direct compensation last year of about $3.9 million. Covey ranked second in last years analysis, behind Coldwater Creek co-founder and former CEO Dennis Pence, who retired in October but still is ranked 24th on this years list.


This year, just behind Covey was veteran mining executive Dennis Wheeler, chairman, president, and CEO of Coeur dAlene Mines Corp., with total direct compensation of $3.1 million. Wheelers salary and bonus shot up 52 percent over the previous year.


Rounding out the top five were Ambassadors Groups Thomas, at $2.7 million; Timothy Mayleben, former president and COO of Nighthawk Radiology Holdings Inc., at $2.5 million; and Gary Ely, former chairman and CEO of Avista, at $2.2 million. Ely retired at the end of last year, and Mayleben left Nighthawk in February.


Other notable execs in the top 10 were LeRoy Nosbaum, chairman and CEO of Itron Inc., and Idaho Independent Bank Chairman and CEO Jack Gustavel, both at $1.5 million, and Phillips Baker Jr., president and CEO of Hecla, at $1.4 million. Georgia Shonk-Simmons, president and chief merchandising officer at Coldwater Creek, ranked ninth and is one of only nine women in this survey and one of only three on the list of 40 highest-paid execs. Shonk-Simmons has ranked first on the list twice.


Although there is no comparative number available for the overall increase in direct compensation in 2006, due to the change in SEC disclosure rules, the 12 percent jump found in the 2007 proxies used in this years analysis was among the smaller increases the Journal has found in its annual study of executive pay.


Because most companies now base a large portion of their executive compensation on a companys own performance, typically over a three-year cycle, when times are good for a particular company, executive pay can soar. For 2004, for instance, overall pay shot up 63 percent, followed by a 42 percent jump in 2005.


Nationally, though, the 12 percent jump in 2007 appears higher than what the biggest U.S. companies saw last year. The Wall Street Journal reported in April that executives in its annual study saw an increase in overall direct compensation of 3.5 percent. Its study, conducted for it by Hay Group, included just CEOs of companies with annual sales in excess of $5 billion, and uses median pay, rather than average pay, in its report. The median increase for executives in the Journal of Business study was 6.8 percent.


I think what youre seeing is a pendulum shift, says Marx. Companies are trying to be more responsible about how they pay their top executives, she says. I see more conservative packages that are tied to long-term compensation.The components of pay


In addition to salary and bonus, an executive typically is awarded money based on the long-term performance of the company he or she helps to lead. The three most typical ways to pay for long-term performance are through stock options, restricted stock, and what are called performance shares.


With a stock option, a company grants an executive the right to buy a certain number of common shares within a set period at a frozen price. The exercise price is set at the market price for the stock on the day the option is granted. If the stock price then climbs, the executive can exercise the option to buy those shares at the lower price, and reap a gain. With restricted stock awards, the executive receives the shares outright, but they come with restrictions on when they vest and when the executive can sell them.


To explain performance shares, its easiest to look at a specific example. Hecla awards them to executives with the proviso that the shares mature after a three-year period, during which the company must meet certain strategic goals related to increases in mineral resources and cash flow from operations. The shares initially are valued at $100 each, but based on the companys performance over the next three years can be worth anywhere from nothing to $200 each.


For the three years ending in 2007, Hecla failed to meet its cash-flow goals, but hit 85 percent of its target for increasing resources, and thus paid its top executives $47.85 per unit, less than half the original value. That made CEO Phil Bakers 3,970 units worth $189,965, which is included under the Long-term pay and pension changes column on the Journals list. Some companies list the cost of performance units under other categories.


Some companies no longer offer stock options to executives, but many still do, and there are a lot of unexercised shares sitting out there that still could allow executives to cash in. In this years analysis, executives had accumulated options to buy an average of 107,000 shares each of his or her companys stock. Also, executives in this years analysis together have unvested restricted stock and performance-share units worth an estimated $30.6 million, or about an average of $352,000 each. Potlatchs Covey, for instance, is sitting on unvested stock and performance units worth an estimated $6.6 million, though actual payment on those shares will depend on the companys future performance.


Another item companies now must disclose in their main compensation tables is the change in value in each executives pension plan. In most cases, those increases are relatively modest, but sometimes they can be far more. Take, for instance, Avistas Gary Ely and Scott Morris. Avista posted a $531,000 jump in Elys pension account and a $334,000 increase for Morris, who succeeded him Jan 1.


One of the categories of executive pay that seems to raise the ire of shareholders nationally is that of perks, though examples of extravagance are hard to find among the proxies of the Inland Northwest companies. Typically, such perks include matching contributions to 401(k)s, medical and life-insurance premiums, moving expenses for new hires, and sometimes club memberships and auto allowances.


Public companies also now provide much more disclosure on how much compensation an executive would receive if he or she left the company for specific reasons. The provisions of such compensation often are quite complex, taking multiple pages of a proxy to explain. One example of such provisions is for Itrons LeRoy Nosbaum, whoif he is terminated without cause or quits for good reason during a period after there is a change in control of the companywould receive more than $21 million.


In another example, Red Lion Hotels Corp. took a $3.7 million charge against its first-quarter earnings this year in connection with the retirement of former President and CEO Arthur Coffey. In a disclosure, the hotel company said Coffey was due his accrued salary, bonus, and vacation pay, plus a lump-sum payment of $2.1 million, some future health-care coverage, and accelerated vesting of stock options and restricted stock.Disparity among companies


Because much of an executives pay these days is dependent on the financial performance of his or her employer, it should come as no surprise that some companiesand some industriespaid their execs more last year than others did.


In addition to Sterling, other companies here that greatly boosted executive pay in 2007 were Coeur dAlene Mines, whose top five employees enjoyed an average pay raise of 53.5 percent, and Mines Management Inc., whose top execs saw their compensation grow 34.3 percent.


In terms of company performance, Sterling posted a 26 percent increase in earnings last year, and has averaged nearly 12 percent a year in return on equity.


Joining Avista among companies whose top executives average pay fell last year were Coldwater Creek, Hecla, Gold Reserve Corp., AmericanWest Bancorporation, Intermountain Community Bancorp, and Northwest Bancorporation Inc.


As a whole, pay among executives in the financial industry grew an average 10 percent, while those in the technology field saw pay grow 5.3 percent, and in natural resources it increased 3.2 percent. Executives in the travel industry saw their pay rise an average of nearly 15 percent.


Contact Paul Read at (509) 344-1262 or via e-mail at paulr@spokanejournal.com.