Bas ReliefIn sharp contrast, the company's new CEO pocketed no paycheck at all last year. Instead, Anderson collected nonqualified stock options for 1.1 million shares of Duke stock and awards for additional performance shares and phantom stock. His stock options, representing 13% of all employee options granted last year, were valued at $5.5 million at the end of 2003. His performance shares were worth $7.36 million, and his phantom stock was valued at $5.8 million. Paul Hodgson, a senior research associate at The Corporate Library, has already praised Anderson's compensation arrangement. "While the potential rewards from the package could be substantial, this will largely depend on the performance of the company over the next three years," Hodgson wrote after Anderson agreed to become Duke's new CEO late last year. "In any case, with mediocre performance, the company will likely make considerable cost savings. Anderson's predecessor at Duke, Richard Priory, earned a total of $5.94 million in fiscal 2002, despite not receiving an annual bonus because the company's EPS target was not met." Hodgson also applauded the lack of severance promises in Anderson's contract. He did see a couple of flaws in the overall arrangement, however. He said that Anderson's market-priced stock options gained $130,000 just three days after their grant date and should have, instead, been priced at a premium or tied to performance. He also felt that Anderson should not be allowed to collect Duke's generous $1.10 dividend on performance shares that have not yet vested. It's also true that Duke doesn't count the cost of market-priced stock options against its earnings, though it does expense "restricted stock grants, phantom stock awards and certain stock-based performance awards," according to its 2003 10-K. The disclosure comes as public companies come under increasing pressure to reflect the cost of options on their quarterly earnings statements. According to Duke's annual filing, expensing all stock-based compensation would have added $30 million to the company's 2003 loss.
"The new package for Anderson has some extremely positive aspects," Hodgson wrote. "The replacement of cash pay with the award of stock units, and the payment of dividends on these, tie his compensation closely to the performance of the company and align his interests precisely with those of stockholders."