Worth their pay? Most stocks stumbled last year, staggering investors. But options let some CEOs keep kicking up their heels.

• Author: Gray, Tim
• Position: Cover Story - Statistical Data Included

John Blystone, chairman, president and CEO of Charlotte-based SPX Corp., learned his lessons well at General Electric. Blystone spent 14 years, in two stints, at the Connecticut-based conglomerate before becoming boss of SPX in 1995.

GE, of course, is one of the nation's most successful companies. Under former CEO Jack Welch, it racked up an impressive record for shareholders -- its stock returned an average of 24% a year during his two-decade tenure. In appreciation, GE's board handed Welch, who retired last year, a pension of $9 million a year.

Blystone, for his part, hasn't done half bad since taking over at SPX, which moved to North Carolina last year after buying United Dominion Industries, a Charlotte manufacturing conglomerate. Over the five years ended Dec. 31, $100 invested in his company's stock would have grown to $354.08, compared with $166.25 for the S&P 500.

Like GE, SPX is a conglomerate, though substantially smaller. It had 2001 sales of $4.1 billion, compared with GE's $90.8 billion. SPX makes industrial equipment, including television and radio towers and antennas, power transformers, air-filtration systems and a variety of other products.

Something else Blystone appears to have acquired at GE is an appreciation of generous CEO compensation packages. In July, SPX's board announced that it was handing him $48.9 million in restricted stock. Blystone wouldn't comment. But in a press release at the time of the grant, board member J. Kermit Campbell said, "The action taken by the board today is intended to indicate this board's commitment to retain Mr. Blystone as the company's chairman, president and chief executive officer for the foreseeable future."

What the release doesn't say is that SPX's stock lost a third of its value from March, when it hit $151.45, to July 3, the grant's effective date, when it was trading at $97.70.

This isn't the first time SPX's board has showered its CEO with money. In 2000, he made a total of $61.7 million, thanks mainly to stock-option grants worth $58.7 million. Last year, his total pay fell to $10.4 million. That still put him sixth in BUSINESS NORTH CAROLINA'S ranking of the total compensation -- cash plus stock-based compensation -- received by the CEOs of the state's 75 largest public companies. He's up there with the bosses of such well-known Tar Heel behemoths as Bank of America and Wachovia.

Give Blystone credit. At least he made money for his shareholders in 2001. Despite a tough year for the stock market -- the S&P 500 lost 10.5% -- SPX's stock rose, giving the company a total return of 37.6%. That made him a better value than several of the CEOs above him on the list. Wachovia's Ken Thompson took home $17.4 million in 2001, while his shareholders lost money, with a total return of -3.2%. Ditto for Duke Energy's Rick Priory. He got $11.1 million, while his shareholders lost 2.5%. Granted, Duke's stock was dragged down by the controversy surrounding the energy industry post-Enron. Still, Thompson's and Priory's paydays bring to mind the lyrics of an old country song: "She got the gold mine, and I got the shaft."

Their riches also point to a dirty little secret of CEO compensation: The size of a CEO's paycheck seems correlated to the size of his company, not to the return he gives his shareholders. No wonder Hugh McColl, former CEO of BofA, loved mergers so much.

Browse the list, which starts on page 36, and you'll notice that the bulk of many of the executives' compensation comes from stock options. Take BofA's Ken Lewis, who ranked first with total compensation of $25.1 million in 2001. Of that, $18.4 million came from options grants. In fact, every executive in the top 10, except one, Andrew Schindler of R.J. Reynolds Tobacco, got far more in options than cash. And Schindler got $1.7 million worth of restricted stock.

Public companies embraced options in a big way in the '90s. In theory, they align the interests of managers and shareholders. "The underlying economic thinking is extremely powerful," says Robert Bushman, an accounting professor at UNC Chapel Hill. Absent an ownership stake, a CEO's incentive is to make low-risk moves that don't imperil his salary or stature. Give him an ownership stake, and his goal becomes the same as shareholders' - maximizing profits.

At least that's the theory. But options have also been blamed partly for scandals at Enron and WorldCom. The argument goes like this: Executives have company information that other shareholders don't. That allows sneaky ones to manipulate their companies' earnings. At Enron, that meant hiding debt in off-balance-sheet partnerships. At WorldCom, it meant booking current expenses as capital costs that could be depreciated.

Based on this incomplete or incorrect information, the company's stock rises, and the CEO exercises his options, pocketing millions. If the stock tanks when the chicanery is revealed, it's the shareholders who suffer. The CEO doesn't have to disgorge the millions he made from his options unless he's convicted of a crime.

Critics have blamed the options explosion on the fact that options aren't counted as expenses on many companies' income statements. If a company gives its CEO $1 million in salary, it has to record it as an expense, reducing income. If it hands out $1 million in options, it doesn't, though it does have to include a financial-statement footnote adjusting its income for the impact of the options. Even so, the only real check on the amount of options that companies hand to their executives is shareholder disgust.

And that disgust may have reached a point where it will rein in options and CEO pay generally, UNC's Bushman says. "When the market was rising like crazy, people were less skeptical. But we're probably going to recalibrate now. An interesting comparison is Europe, where the pressure on executive pay and options has historically been brutal. I think that's going to be moving to a town near you."

Pay vs. Performance CEO COMPENSATION Exchange/ Base CEO/ Ticker/ salary Rank Company City (000s) 1 Kenneth D. Lewis (1) (N-BAC) Bank of America Charlotte $1,333.3 2 G. Kennedy Thompson (N-WB) Wachovia Charlotte 1,000.0 3 Thomas P. Mac Mahon (N-LH) Laboratory Corp. of America Burlington 812.5 4 David Stonecipher (N-JP) Jefferson-Pilot Greensboro 1,112.4 5 Rick Priory (N-DUK) Duke Energy Charlotte 1,088.5 6 John B. Blystonr (N-SPW) SPX Charlotte 1,150.0 7 Robert L. Tillman (N-LOW) Lowe's North Wilkesboro 935.0 8 F. Neal Hunter (Q-CREE) Cree Durham 230.0 9 Andrew Schindler (N-RJR) R.J. Reynolds Tobacco Winston-Salem 983.3 10 Pamela J. Kirby (1) (Q-QTRN) Quintiles Transnational Durham 356.3 11 William Cavanaugh (N-PGN) Progress Energy Raleigh 1,043.4 12 Matthew J. Szulik (Q-RHAT) Red Hat Raleigh 350.0 13 Mackey McDonald (N-VFC) VF Greensboro 960.0 14 Scott A. Livengood (N-KKD) Krispy Kreme Doughnuts Winston-Salem 450.0 15 John Allison (N-BBT) BB&T Winston-Salem 824.0 16 David Burner (N-GR) Goodrich Charlotte 950.0 17 Stephen P. Zelnak (N-MLM) Martin Marietta Materials Raleigh 708.3 18 J. Frank Harrison III (Q-COKE) Coca-Cola Bottling Charlotte 634.9 19 Ronald P. Gibson (N-HIW) Highwoods Properties Raleigh 378.1 20 Fredric N. Eshelman (Q-PPDI) Pharmaceutical Product Dev. Wilmington 547.9 21 Dani P. Bolognesi (Q-TRMS) Trimeris Durham 397.3 22 O. Bruton Smith (N-SAH) Sonic Automotive Charlotte 800.0 23 Howard Levine (N-FDO) Family Dollar Stores Matthews 509.6 24 John R. Plachetka (Q-POZN) Pozen Chapel Hill 350.0 25 John P. Derham (N-CTR) Cato Charlotte 686.6 26 Darryl W. Thompson (Q-TGIC) Triad Guaranty Winston-Salem $232.2 27 Steven R. LeBlanc (1) (N-SMT) Summit Properties Charlotte 425.0 28 David A. Norbury (Q-RFMD) RF Micro Devices Greensboro 312.0 29 James H. Ridinger (O-MARK) Market America (2) Greensboro 365.0 30 Robert E. Harrison (N-STW) Standard Commercial Wilson 445.0 31 Paul A. Stroup (Q-LNCE) Lance Charlotte 283.1 32 Douglas Lebda (Q-TREE) Lending Tree Charlotte 271.0 33 Lewis R. Holding (1) (Q-FCNCA) First Citizens BancShares Raleigh 691.7 34 O. Bruton Smith (N-TRK) Speedway Motorsports Concord 375.0 35 Richmond D. McKinnish (1) (N-CSL) Carlisle Charlotte 525.0 36 Peter J. Sodini (Q-PTRY) Pantry Sanford 527.6 37 Randall L. Marcuson (Q-EMBX) Embrex Durham 290.0 38 David Crane (Q-MDTH) MedCath (3) Charlotte 435.0 39 Brian R. Parke (N-UFI) Unifi Greensboro 750.0 40 Ware F. Schiefer (N-PNY) Piedmont Natural Gas Charlotte 388.8 41 Billy D. Prim (Q-RINO) Blue Rhino Winston-Salem 381.6 42 Lawrence M. Kimbrough (Q-FCTR) First Charter Charlotte 300.0 43 James C. McGill (Q-FSBC) 1st State Bancorp Burlington 175.0 44 Earl E. Congdon (Q-ODFL) Old Dominion Freight Line Thomasville 315.3 45 Michael R. Coltrane (Q-CTCI) CT Communications Concord 255.0 46 Frank M. Drendel (N-CTV) CommScope Hickory 551.0 47 Frederick D. Sancilio (Q-AAII) aaiPharma Wilmington 400.0 48 Stanley K. Tanger (N-SKT) Tanger Factory Outlet Centers Greensboro 409.5 49 Daniel R. DiMicco (N-NUE) Nucor Charlotte 423.0 50 Myles E. Standish (1) (N-OH) Oakwood Homes Greensboro 323.3 51 John L. Bakane (N-COE) Cone Mills Greensboro $500.0 52 Robert P. Ruscher (Q-SLXP) Salix Pharmaceuticals Raleigh 350.0 53 Robert G. Culp III (N-CFI) Culp High Point 405.2 54 Thomas A. Vann (Q-FSBK) First South Bancorp Washington 240.0 55...