Best bang for the bucks

Hach president tops rankings for return on compensation

The answer to the questions “What makes a good CEO or chief financial officer?” and “How should compensation be determined?” are as varied as the backgrounds of the executives who head up the public companies based in Northern Colorado.

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According to an analysis by The Northern Colorado Business Report, Bruce J. Hach, president and chief operating officer of the Hach Co., a Loveland-based designer of water-analysis systems, is the region’s top executive officer based on return on compensation. Here’s how we arrived at that assessment:

The traditional measure of performance in a public company has been the CEO’s ability to oversee an increase in the price of the company’s stock. In a public company, the stockholder is the ultimate consumer. So, the logic goes, the CEO’s job is to increase the company’s value, hence increasing the value of the investors’ holdings.

Then, last month the board of Sunbeam Corp. unceremoniously lopped off its head, “Chainsaw” Al Dunlap, who got his name lopping off costs by cutting employees, 25,000 at Sunbeam alone. The board proclaimed it had “irrevocably lost confidence” in Dunlap’s leadership, despite a 44 percent increase in the value of Sunbeam stock during Dunlap’s two-year tenure, and canned him.

So, the new thinking is that there must be more to being a good CEO than bulking up your company’s stock price.

“That person has to be dedicated to hard work,´ said Roger Myatt, who heads up Roger Myatt & Associates Inc. of Fort Collins, and that company’s securities dealership arm, AFS Financial and Mortgage Services. “He or she has to possess not only the knowledge to do the job, but the desire to outwork others. And, that person’s integrity must be unquestioned. Finally, you have to be dedicated to customer and employee service.”

Employee service. With 25,000 Sunbeam layoffs under his belt, maybe that is where Dunlap failed. Perhaps being a good CEO is about “the vision thing,” that ability to envision a future direction for a company toward which the entire organization can work. It clicked for Apple Computer and Steve Jobs, at least during the go-go 1980s and, heck, Jerry “Moonchild” Brown was elected mayor of Oakland last month.

Then, there is the school that says you’ve succeeded if you have positioned your company to corner the market. Followers of this school point to Microsoft Corp. and the “World’s Richest Man,” Bill Gates who, coincidentally, is this school’s greatest adherent.

Our evaluation of Northern Colorado-based company CEOs settled for a more straightforward measure of success, considering only the ratio between each CEO’s total 1997 financial compensation and his company’s 1997 revenues.

Hence, we arrived at the ultimate (at least for this article) measure of success: the number of dollars of revenue returned for each dollar of compensation earned.

Bruce Hach led the field of nine contenders. His company reported 1997 revenues of $121.48 million, while Hach received total compensation in salary and stock of $200,357. His return on compensation was a gaudy $606 in revenue to $1 in compensation.

Hach’s return on compensation was well ahead of No. 2, Advanced Energy Industries Inc.’s Douglas S. Schatz. Advanced Energy reported revenues of $141.9 million for 1997, and Schatz pulled down a comparatively paltry $302,286 for holding down all three top jobs, chairman, president and CEO. Returning $469.50 on each dollar earned, maybe president and CEO Schatz should approach Chairman Schatz about a raise.

Following Schatz closely was EFTC Corp.’s Jack Calderon, who delivered $427.50 back to EFTC for each dollar earned as president and CEO. Wiley E. Prentice demonstrated how crafty he could be, leading Applied Computer Technology to $20.24 million in reported revenues at a cost of only $71,910 in compensation, a return on compensation of $281 to $1.

The return drops sharply after these first four execs. The remaining five, however, demonstrate that a list of this type has some inherent flaws. StarTek Inc.’s Michael W. Morgan earned $597,217 against reported revenues of $89.15 million, a $149.50 return on compensation. But the Denver-based package designer and electronic media duplicator just went public. No doubt Morgan’s return on compensation will get bigger in the future.

At Fort Collins’ Heska Corp., the companion-animal specialist company profiled in June’s edition of the Business Report, president and CEO Fred M. Schwarzer drew $200,000 in 1997 compensation, while the company reported $20.88 million in revenues.

That’s a seemingly low return on compensation of $104.40. The problem here is that Heska, founded in 1988, spent the bulk of its first decade devoting money and effort to research and development of its companion-animal diagnostics, pharmaceuticals and vaccines. Its first products did not go on the market until the mid-1990s. Its most bankable products are just being released to markets here and in Europe.

The final three top returns on compensation are Atrix Laboratories Inc.’s John E. Urheim, earning $218,475 against reported revenues of $11.55 million, for a return on compensation of $52.84; Avert Inc.’s Dean A. Suposs, earning $187,782 while returning a reported $9.5 million in revenues, for a return on compensation of $50.54; and Voice It Worldwide Inc.’s Dennis W. Altbrandt, who drew $160,000 against reported revenues of $7.6 million, a return on compensation of $47.40.

Again, though, it is worth noting that Voice It Worldwide is the very essence of an entrepreneurial venture. The 5-year-old Fort Collins company has only 25 employees, specializes in producing only one product, personal note recorders, and still has substantial reported revenues.

This system of rating executives by return on compensation is admittedly simplistic, given that there are many factors that contribute to an executive’s success, such as profits, stock price and other measures.

“If I was God,´ said University of Northern Colorado economist John Green, “I would say a CEO would be paid based on what he or she actually accomplished for the company. Compensation is really based on risk. ‘Chainsaw’ Al Dunlap risked his whole reputation every time he took a turnaround job. What does he do now?”

Green’s measure of executive worth would be based on considerations such as the size of the company, the number of employees, its debt ratio and market share. Criteria like those suggest that only the largest and best company’s can have the truly big returns on compensation.