Is Warnaco CEO Linda Wachner Really Worth So Much Money?

Compensation gadfly Graef Crystal doesn't think so.
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I would pay to see Linda Wachner, the CEO of

Warnaco

(WAC)

, go head-to-head with compensation gadfly Graef "Bud" Crystal over her compensation. Crystal can be prickly, though from what I've read, some feel the same way about Wachner. But he's in rare form when he talks about Wachner's compensation. A just-published report on the

Crystal Report Online

is headlined, "When Will Someone Stop This Woman?"

Analysts who track the company appear unconcerned, according to my colleague

Suzanne Kapner's

recent

take on Warnaco, which is one of the country's biggest makers of ladies underwear and also manufactures

Calvin Klein

jeans and khakis.

Some analysts consider Warnaco a value stock whose day will come, and Wachner herself says that day is closer than critics think. Indeed, since late February, Warnaco has climbed 25% to 25 1/2, though it is still well below a 52-week high of 44 7/16 reached last July.

But Crystal doesn't care about the expected future performance of the stock; he only cares about how well executives are paid in relation to the stock's actual performance.

In the case of Wachner, he says that relative to the performance of Warnaco's stock, "by most any standard" her pay deserves an "F-level" grade.

At least it does when judged on total shareholder return. (Warnaco and Wachner beg to differ, and more on that later.) Last year, Warnaco's stock (including reinvested dividends) sank 19%, while the

S&P 500

rose 29%. Meanwhile, Wachner's base salary for the year was $2.7 million, second only to

GE

(GE) - Get Report

CEO Jack Welsh, who's base pay was $2.8 million. "That's for a year's work ... a year's work in which the company lost $32 million," Crystal says. (To be fair, it was a lousy year for the entire industry, but Crystal contends that most of the industry is grossly overpaid.)

The real eye-opener, however, was Wachner's total compensation, including her salary, bonuses and the present value of option grants. Last year it topped $73 million, not including $75.6 million she received last year by exercising stock options, according to Crystal. By contrast,

Gap

(GPS) - Get Report

CEO Mickey Drexler's total compensation package last year was a mere $46.8 million, Crystal says. But his company last year had $9 billion in sales compared with $1.9 billion for Warnaco, and last year it had an $825 million net profit. "He's over the market, too, but his performance blows you away," Crystal says. Gap was up 138% last year not including reinvested dividends.

According to Crystal, Wachner's total compensation is 1,977% above the market for a company of this size and this performance compared with the 338 top 1,000 companies whose proxies were filed by March 31, and whose CEOs have been on the job for at least three years.

Cendant's

(CD)

Henry Silverman is next on Crystal's list at 913%.

"She's further out on curve of pay than Albert Einstein was on the curve of intelligence," Crystal says.

Wachner's story doesn't end there. She's also CEO of

Authentic Fitness

(ASM) - Get Report

, another company with a spotty performance. (Maybe if she focused on one company, both would do better? She says no.) Her base salary at Authentic is $1.1 million, with an option on 1.7 million shares. When combined with Warnaco, at $3.8 million she is

the

highest paid CEO out of the 429 whose 1998 numbers have been posted.

Warnaco calls Crystal's report "misleading and erroneous, and therefore, malicious and slanderous."

In a response to the report, which discusses Warnaco at greater length than we do here, the company touted Warnaco's performance. It pointed out that revenue and operating income last year rose 35.8% and 30.2%, respectively.

"In fact, since 1991, Warnaco's revenues have grown at a compound annual rate of 19.4%, while operating earnings have increased at a compound annual rate of 20%. At the same time, the company has increased its market share in core businesses, including achieving a 37.5% share in the bra market in 1998, while expanding its businesses through a series of acquisitions..."

Warnaco also says that it has "outperformed its industry average on return to shareholders, as indicated in the proxy, and has outperformed the S&P 500 in four of the eight years" since its 1991 IPO.

Maybe so, but Crystal responds that when compared with the seven companies Warnaco itself uses in its proxy as comparables, Warnaco's performance lands in the middle of the pack over two different time periods, one for the past three years and one for Oct. 31, 1991 through Dec. 31, 1998.

"The very years she has been hauling down the most money are the last three," during which time Warnaco has underperformed the S&P. (Oct. 31 is the last date for which Crystal has data from his

Bloomberg

terminal. Warnaco insists that Oct. 11, its IPO date, is more appropriate. But the three weeks don't really change Crystal's results.)

Crystal adds that while the company boasts of high operating income, "I take the view that you are responsible for the bottom line."

Wachner, herself, is known as a tireless and demanding worker. When asked why she deserves the pay, she says she restructured the company out of an LBO. She clearly takes great pride in her accomplishments.

To which Crystal says, "But aren't we judging by output, not input? That's what people are paid for; they're paid for what they're producing for shareholders... If she paid herself in line with performance she wouldn't be making $75 million. She wouldn't be making $10 million. She would be making $2 million. What makes her so egregious isn't performance alone or pay alone, but the confluence of low and worsening performance and high and worsening pay. Maybe at first the gap was as wide as the Hudson River. Now it's as wide as the Pacific Ocean."

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg writes a monthly column for Fortune and provides commentary for CNBC.

As originally published, this story contained an error. Please see Corrections and Clarifications.