The following appeared in the August 10, 2003 issue of THE NEW YORK TIMES:
AT HEINZ, A NOVEL WAY
TO SAY THE BOSS IS WORTH IT
BY PATRICK MCGEEHAN
To help investors compare executive pay to per- a bonus for last year. That reward did not reflect
formance, companies are required to include the performance of Heinz stock, whose price fell
stock price charts in their annual proxy state- about 20 percent during the fiscal year, or about
ments. But what does a company do if its chief double the decline of its peer group of pack-
executive gained while its shareholders lost? aged-foods companies.
H. J. Heinz, the ketchup maker, has what seems ''The bonus for management is tied to opera-
to be a novel answer: It came up with a second tional performance, not to the total shareholder
chart that presents a much rosier picture of how return number,'' Mr. Smyth said.
shareholders fared -- not during the last fiscal The compensation committee of the Heinz board
year but over a more recent eight-month period. said it had rewarded Mr. Johnson for other
By that measure, Heinz has outperformed its achievements, like increasing sales and cash
competitors, an interpretation that might make flow and reducing debt, Mr. Smyth said. He
it easier for shareholders to stomach the big added that the company's earnings had met ana-
raise the company gave to William R. Johnson, lysts' expectations.
its chairman and chief executive.
In the proxy, the committee said it had allocated
Mr. Johnson received a pay package valued at stock options to Mr. Johnson and other senior
$8.8 million in the fiscal year that ended on executives for, among other accomplishments,
April 30, according to the proxy statement having completed the spinoff in late December
Heinz released last week. That amounted to a 47 of several of its products lines to Del Monte
percent raise over the $6 million in cash, options Foods. The company considered that transac-
and perquisites he received the year before. tion, which relieved Heinz of its pet food, tuna,
On top of his salary of $1.05 million, Mr. John- soup and gravy businesses, to be a transforma-
son received a cash bonus of $1.53 million, stock tive deal that would make it more profitable and
worth $3.21 million and options worth $2.68 mil- attractive to investors.
lion. The company also paid for a life insurance To buttress their argument, Heinz executives
policy and about $20,000 for his company car. devised a chart for the proxy to show investor
In addition, Heinz enhanced the terms of Mr. enthusiasm for the spinoff. But even though the
Johnson's executive retirement plan at the be- transaction was not completed until Dec. 20,
ginning of the fiscal year to make it more com- they chose Oct. 31 as a starting point because, a
petitive with those of other chief executives, said Heinz spokesman said, that was when investors
Ted Smyth, a spokesman at the company's accepted that the deal would happen. And even
headquarters in Pittsburgh. The upshot is this: If though the fiscal year ended in April, they chose
Mr. Johnson, 54, stays at Heinz for nine more June 30 as an end point because, another
years and earns as much in any four of them as spokesman said, they wanted to present as up-
he did last year, the company will pay him as to-date a picture as possible.
much as $3.5 million a year after he retires. During that eight-month stretch, Heinz stock
More than half of Mr. Johnson's 2003 package -- rose 13.8 percent, to $32.98 from $28.97. Had
$4.74 million in cash and restricted shares -- was they chosen instead the period from the close of
the deal to the end of the fiscal year, the results of the stock's moves after the deal would have
would have been quite different: during that pe- been fairer.
riod, the stock fell 4.8 percent, to $29.88 from ''Giving stockholders the full amount of data
$31.40. and allowing them to draw their own conclu-
''It's a public-relations exercise pure and simple,'' sions about the effects of strategic decisions ra-
said Paul Hodgson, who analyzes executive pay ther than painting rosy pictures is always the
for the Corporate Library, a research firm in best way,'' Mr. Hodgson said. ''There are three
Portland, Me. He said a month-by-month chart rules of good stockholder relations: disclosure,
disclosure and disclosure.''
Appendix: Charts from 2003 Heinz Proxy Statement
Cumulative Shareholder Return on $100
$180 H. J. Heinz
S&P Packaged Foods
$- 1998 1999 2000 2001 2002 2003
H. J. Heinz $100 $93 $75 $81 $92 $74
S&P Packaged Foods $100 $94 $76 $97 $113 $102
S&P 500 $100 $125 $133 $120 $104 $90
Chart from p. 20 of proxy statement
Cumulative Total Shareholder Return
October 31, 2002 - June 30, 2003
Heinz S&P 500 S&P Packaged Foods
Chart from p. 21 of proxy statement