Executives of Inland Northwest publicly traded companies saw their total compensation shoot up an average of 42 percent last year, as more of them cashed in on lucrative stock options and the companies they led shared the largess of improving fortunes.


While CEOs figured prominently in the surge in pay, they werent the only well-compensated stars of 2005. The top two earners in the Journal of Business annual executive compensation analysis dont hold the top posts at their respective companies. Also of note, the mostly highly paid executive in this years analysis is a woman, Georgia Shonk-Simmons. As president and chief merchandising officer of Sandpoint-based Coldwater Creek Inc., she amassed total compensation of nearly $5.9 million last year.


It was only the second time in the 13 years in which the Journal has tracked executive pay here that a woman executive has led the pack. Shonk-Simmons first topped the list for fiscal year 2000. Only 10 percent of the executives in this years analysis are women.


In the previous years study, average overall compensation shot up 63 percent. Back in fiscal year 2001, the increase was just 7 percent.


The analysis of the compensation of nearly 90 executives here found that their average pay, including perks, long-term incentive pay, and gains on exercised stock options, rose sharply to about $895,000 in their employers 2005 fiscal year. That compared with about $629,000 for the same set of executives in the previous year.


While salaries and bonuses alone climbed a robust 18 percent last year, to an average of nearly $442,000, exercised stock options were the bigger reason for the sharp rise in overall compensation. In all, 32 executives cashed in such options, for an average individual gain of $847,000. In fiscal 2002, when the economy was still reeling, only 10 executives bothered or were in a position to cash in options.


The information for the analysis came from the proxy statements of 20 companies in the Spokane area and North Idaho. Public companies are required to file executive pay information annually with the U.S. Securities and Exchange Commission.


In this years analysis, a record 19 executives had overall compensation in excess of $1 million. Two of them, Shonk-Simmons and Robert Neilson, then president and chief operating officer of Itron Inc., surpassed $5 million in compensation, thanks largely to stock-option gains.


Public companies here posted an average 22 percent gain in total shareholder return last year, counting share-price increases and dividends, according to information gleaned from the proxies. Executive pay, however, often is based these days not just on the current year in which compensation is paid, but on company or executive performance over the previous three or more years. With that in mind, it might be more important to note that the companies included in this years analysis had an annual average shareholder return of a whopping 85 percent over the past five years. Excluding Mines Managements unusually high returns from that analysis, the overall average drops to about 48 percent.


If its a good investment for shareholders, its logical that these executives should be rewarded, says Spokane executive headhunter Jeannine Marx. When looking at the compensation numbers, Marx says, its important to remember that they reflect the efforts of the last five years, not just 2005.


The list


Following Shonk-Simmons and Neilson on the Journals list of 40 highest-paid public-company employees this year was Jeffrey Thomas, president and CEO of the Spokane-based educational travel company Ambassadors Group Inc., with total compensation of about $3.6 million. Thomas, whose salary and bonus alone totaled $1.2 million in 2005, also held the No. 3 spot on last years list.


Next on the list was Itron Chairman and CEO LeRoy Nosbaum, at about $3.4 million, thanks in big part to stock-option gains and restricted stock awards. Nosbaum ranked 29th on the list last year. In a bit of an anomaly, fifth on the list this year is John Ueberroth, chairman of Ambassadors Group, whose 2005 salary was just $100,000, but who posted nearly $3.2 million in stock-option gains during the year.


Others who made more than $1 million in overall compensation were: Sterling Financial Corp.s Harold Gilkey, William Zuppe, and David Bobbitt; Avista Corp.s Gary Ely; Potlatch Corp.s former CEO Penn Siegel; Ambassadors Groups Margaret Thomas; Coldwater Creeks Dennis Pence and Dan Griesemer; Coeur dAlene Mines Corp.s Dennis Wheeler; Itrons Steven Helmbrecht, Phil Mezey, and Malcolm Unsworth; Nighthawk Radiology Holdings Inc.s Dr. Paul Berger; and Idaho Independent Banks Jack Gustavel.


Most executives in this years analysis received a boost in salary and bonus. Only a handful received no bonus at all. The biggest bonus, at about $1.8 million, went to Shonk-Simmons, who has helped to lead apparel retailer Coldwater Creek through a number of highly successful years. Coldwater Chairman and CEO Dennis Pence, received the second-biggest bonus, at just over $1 million.


The average bonus in 2005 was about $190,000, or roughly 27 percent higher than the previous year.


Bonuses almost always are tied to performance goals that an executiveand sometimes an entire companymust achieve. With most companies here doing well financially over the past two or three years, that meant more bonuses.


Despite the surge in average compensation, a number of executives here saw their pay decrease. All five top executives at Potlatch posted lower overall compensation in 2005, and rather dramatically so. As a group, their pay fell 40 percent, due mostly to far smaller bonuses and considerably less in stock-option gains.


Other companies whose top five executives averaged a decline in overall pay included Sterling, Idaho Independent Bank, and Intermountain Community Bank, all in an industry that saw big increases in exec pay in past years, as a revved-up economy and low interest rates fueled business activity. Overall, executives in that industry saw their average compensation decline about 6 percent in 2005, compared with a 76 percent jump in fiscal 2004.


Executives in the mining industry generally saw increases in pay, as did those in the hospitality industry, which includes Ambassadors and hotelier Red Lion Hotels Corp. The only companies in the retail and utility industries, Coldwater Creek and Avista, respectively, both boosted executive pay handsomely.


The big winners this year, however, were the execs at fast-growing Itron. The average overall compensation for executives at the Spokane Valley-based maker of meter-reading technology was nearly $2.5 million, up more than 500 percent from last year but boosted mostly by gains from exercising stock options. Itrons average annual shareholder return over the past five years exceeded 150 percent.


Executives on this years list took advantage of the overall performance of the companies they help to lead. During fiscal 2005, they exercised stock options that collectively yielded gains of more than $27 million, much higher than the $16.5 million in gains reported for fiscal 2004.


Likely many of those exercised shares were granted a number of years ago.


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 specified frozen price. The exercise price typically 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 exercise price, and reap a gain.


For instance, both Gilkey and Zuppe, of Sterling, were granted options last year to buy 50,000 shares of common stock in the company as part of their compensation package. The exercise price of those shares was set at $25.71, the fair market value of the stock on the date of the grant. With Sterling shares now trading at about $30 a share, they each would stand to clear over $200,000 from those options if they exercised them today.


If a stock doesnt climb, or falls, however, the options have no value at all, and are referred to as being under water. Most options mature over time, so the increased share price would have to hold until they are exercisable.


Itrons Neilson, who left the company in December, exercised options to buy 132,251 shares of stock last year at a gain of $4.56 million.


Marx, the longtime Spokane headhunter, says such a reward is appropriate. Rob Neilson was pivotal in Itrons acquisition of Schlumberger (s electricity metering products business), she says. Its thrilling to see the old risk-and-reward formula work. Its certainly not out of balance.


Some executives this year also were awarded what are called restricted stock, which are shares of stock given outright to an executive, usually with restrictions on when they can be sold.


For instance, Coeurs Wheeler last year was awarded about 109,000 shares of such stock that had a market value on Dec. 31 of about $428,000.


Rather than simply issuing restricted stock or stock options, Avista for the past few years has used a system, called performance shares, as part of its executive compensation package. Such shares mature after three years, and the actual payment of them depends on Avistas performance during that three-year period, based on total shareholder return compared with the returns of other companies in the S&P 400 Utilities Index. The payment is made in either cash or common stock.


Last year, the first of those performance shares matured, and all five top executives of the company received shares, ranging in value from about $113,000 to nearly $1.5 million.


Theres plenty of stock-option money still on the table at the various companies included in the Journals analysis. As of the close of the companies 2005 fiscal years, the 89 executives included in the analysis had a combined about $88 million in gains available to them in exercisable, in the money options, and another nearly $24 million in gains from options that werent exercisable due to rules attached to them or because they were under water at the time.


Rule changes


Nationally, public companies are bracing for what are expected to be strict new rules by the SEC concerning how executives pay is disclosed in proxy statements. In general, they likely will require that companies print additional tables that provide information on particular types of compensation, such as retirement pay, as well as a compensation discussion and analysis section that will describe the underlying policies and decisions behind how the executives are paid.


What theyre trying to get to is that many of the proxies out there include language that is complex or imprecise, and they want a clearer or more complete picture of executive compensation, says Karen Feltes, senior vice president and corporate secretary at Avista.


Feltes says she welcomes the changes, and adds that Avista already strives to make its compensation policies clear because it is watched closely by various institutional investors, such as labor union funds, that demand a high level of clarity and disclosure on executive pay.


I have always said that you better have a defensible position for the compensation you provide, Feltes says. I feel we are in a defensible situation.


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