It Pays to Be a CIO

By Kim S. Nash Print this article Print

23 top technology executives made more than $1 million last year. Meanwhile, 17 saw their pay drop.

PDF Download Spending on information technology is expected to grow a mere 1% this year, senior executives demand quick returns for new projects, and the value that chief information officers create—or don't create—is questioned more than ever.

CLICK HERE to download the full list of highest-earning CIOs.

Yes, it's a tough time to be a CIO and just 66 of them ranked among the highest-paid officers at Fortune 1,000 companies last year, according to a Baseline study of the latest proxy documents filed by U.S. firms. Publicly traded companies must file an annual statement showing the compensation of their five highest-paid officers.

Among the highlights:

  • Most of this year's list of the CIO elite—41—work for Fortune 500 companies,up from 37 in Baseline's ranking last year.
  • Twenty-three CIOs made $1 million or more last year.Bob DeRodes, who in February 2002 took over as CIO of Home Depot, tops the list at $7.3 million.
  • In 2002, 17 chief technologists suffered a drop in pay compared with 2001, mainly because a substantial part of their compensation was tied to company performance.

Home Depot lured DeRodes away from his spot as head of technology at Delta Air Lines with several incentives, the biggest of which was a $5.5 million restricted stock award. He also got a $150,000 initial bonus, a $550,000 bonus to make up for benefits forfeited for leaving Delta and a base salary of $550,000 guaranteed by a written employment agreement.

Home Depot needed a technology heavy-hitter (See "Data Depot," June 03, p.60). The company's same-store sales were flat in 2002 and 2001 and it's hoping a technology overhaul and store remodeling effort can boost growth.

Bonuses are a big deal for this year's group of technology sluggers, comprising an average of 29% of total compensation. But some executives were awarded much more.

Household International CIO Ken Harvey, who became an executive officer last year, got 71% of his pay from a $1.2 million bonus—almost three times his base salary of $410,577. For R. Blake Young at Houston power company Dynegy, 70% of his $1,168,411 pay came from bonuses.

Rick Dalzell, CIO at Amazon.com, got a $1 million bonus, which was 83% of his $1.2 million total package last year. The $4 billion Internet retailer cut operating expenses by 32% last year, thanks in part to savings from its switch from Sun Microsystems Unix servers to Intel servers running the Linux operating system. Amazon won't say exactly how much it saved, but spending on technology and Web site content development overall in 2002 dropped to $216 million, from $269 million in 2000.

Amazon says it sets base salaries lower than competitors but bestows big chunks of stock to tie executive performance to shareholder interests. Yet stock grants are subjective, including the executive's "anticipated contributions to company success," says Amazon.

None of this is unusual. U.S. companies have long been criticized for overpaying senior executives and giving them lucrative compensation packages even when company performance sinks.

With technology executives, the pay-for-performance issue is murky. CIOs who make the proxy statement are typically paid and motivated like other top officers: by overall company performance and some business-unit or individual goals. Household International pays incentives primarily according to earnings-per-share growth.

But such metrics may not explicitly cover technology projects. Some companies tie part of a CIO's bonus to goals such as bringing in a key software project on time and on budget. But rarely do they consider the aftermath. That is, whether the project actually does the company any good.

If a company installs a new customer-relationship management package, should part of the executive's compensation be based on business metrics such as customer satisfaction or increased sales? How do you prove that a sales boost came from the new software and not the new training that agents got about the same time?

This article was originally published on 2003-06-01
Senior Writer
Kim has covered the business of technology for 14 years, doing investigative work and writing about legal issues in the industry, including Microsoft Corp.'s antitrust trial. She has won numerous awards and has a B.S. degree in journalism from Boston University.
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