If you are working behind a drafting table for $60,000 a year, you may want to turn your head away and not read this.

With Wall Street giving engineering and construction stocks new respect, there are some big payouts for executives whose compensation packages are full of stock options.

I've never seen one in our industry as big as the payout for Foster Wheeler's Raymond J. Milchovich. On June 6 he notified the Securities and Exchange Commission that he exercised options for $9.38 a share and sold them on the same two days for $104.93 and $108.57.

That spread no doubt reflects the financial rehab Milchovich has put the company through since it recruited him in 2001 to turn things around. He also had, in his own words, "a talent-rich pool of employees," and in my words, great luck as power markets flickered to life again after the life went out of them around 2000.

The number of stock options Milchovich exercised in those two June days was 73,112. They were exercised under a prearranged trading plan, common among other executives.

For arguments sake, I calculated the buying value of al 73,112 shares—what Milchovich had to pay for them—at roughly $686,000. Then, if he sold the shares at let's say an average of $106.50, the payout looks to me to be $7.8 million more or less, or a profit on just these options reported of more than $7 million.

Boards of directors give out the options as incentives to tie the company performance to the executive pay. A good idea, in theory. In practice it's sick.

No one needs to hear again what's wrong in corporate America when the difference between working behind a drafting table and working in the corner office can be measured in so much gold. Let's remember that many chief executives are collecting base salaries of a half million dollars and up even before the stock options, stock grants, benefits such as free insurance, and some perks are counted.

I know this is America, and I'm happy the money is made in our industry. But some of that value could have been distributed to the employees or plowed back into the company.

The culprits here are the boards of directors that have submitted to and promote the group-think of CEO worship. I don't know Milchovich at all, and he may be a fine and talented man. But most executive pay plans, drawn up with consultants and supervised by director compensation committees, reward short-term results as much as long-term accomplishments. They reward the hard work of the line staff, and the long-term value of a brand and client loyalty, as often as they reward the singular contribution of the chief executive or top company named executives, to use the SEC terms.

In some cases the big stock option pay packages just reward the luck of a rebounding business cycle or market.

I've spent my working life writing about business and we are a country driven by our business engine and I love it. But such windfalls belong to an odious corner of our culture. You wonder what children learn from outsized executive pay packages. Why so many business people seem to have laptops instead of souls and blackberries instead of hearts. It isn't right.

July 12, 2007

I've heard this argument before and there are parts with which I agree. But there are parallels elsewhere in our society that are routinely accepted. Did you know the average salary for a major league baseball player in 2006 was $2,669,292? This question almost always gets a defensive response from sports fans. Why is one okay and the other so offensive?

The capitalist system rewards risk takers and value makers. Do some get lucky? Yes. Are some of these deals ridiculous? Yes. However, these incentives are there to drive expansion, create innovation, spur growth. The result is more products, more choices and mostly lower prices--things that benefit society.

I understand that many people feel they are underpaid and others are overpaid, but saying so many business people don't have souls seems a bit snappish, don't you think?

Dave Riley

July 6, 2007

Your comments are certainly right on the mark. For me, this story points out that capitalism requires moral behavior by management. It is difficult for an executive to morally justify making that kind of payday when it is primarily due to profits being generated because so much of the workload is outsourced to China.

Jeff P.