Stock Options Sweeten Packages for Executives in For-Profit Higher Education

By ANNE MARIE BORREGO

The base salaries of top officers at for-profit higher-education companies

ALSO SEE: A Database of Pay and Benefits, 1993-2000 RELATED CHART AND TABLES: Presidents in Top Pay Brackets Top Earners, Excluding Presidents and Medical Personnel, 1999-2000 Presidents Who Earned the Most in Total Compensation, 1999-2000 Executive Pay in For-Profit Higher Education RELATED ARTICLES: Private-College Presidents Enjoy Another Lucrative Year (11/9/2001) Few Women Are Among the Presidents With the Largest Compensation Packages (11/9/2001)

in the 2000 fiscal year certainly stood up to those of private-college presidents.

The real money, however, was in bonuses and stock options. The top officers of the 10 companies surveyed by The Chronicle were paid an average of $568,228 in total compensation, and that doesn't include stock options.

Cash compensation -- even in the cases of officers paid more than half a million dollars, like those at DeVry Inc., the Education Management Corporation, and the Apollo Group -- appears to be in line with top executives in other industries, says James A. Rowan, managing director of the education group at Legg Mason Wood Walker, a financial-services company. "I'd look at it from both a revenue perspective, as well as the returns that have been created for shareholders," Mr. Rowan says. "In all of those cases -- DeVry, EDMC, and Apollo -- the returns to shareholders have been very strong."

Dennis J. Keller and Ronald L. Taylor, DeVry's top two executives, were the highest-paid officials among the for-profit companies, pulling in virtually the same total compensation -- about $1.1-million. However, their base salaries, both $397,083, were well below the average. The windfalls for Mr. Keller, the chairman and chief executive officer, and Mr. Taylor, the president and chief operating officer, were their bonuses: Both received $688,939, for meeting performance goals.

Stock options are among the most beloved perks for top officers of public companies, especially when share prices are on the rise. All of the companies surveyed -- save Argosy Education Group, Sylvan Learning Systems, and Strayer Education -- granted their top brass tens of thousands of options to purchase stock at reduced rates. On top of a salary, a bonus, and benefits totaling $1.1-million, John M. Larson, chairman and chief executive officer of the Career Education Corporation, received the largest grant of options in the 2000 fiscal year -- 250,000 at $24 each (the figures reflect the company's 2-for-1 stock split in August 2000).

People who hold such options don't necessarily buy all of the shares they are entitled to purchase. Mr. Larson, for example, holds only 62,528 split-adjusted shares, according to the company. As of the end of October, his holdings were worth $1.6-million, based on a closing price of $26.07 per share. He has the option, however, to purchase an additional 733,084 shares at a variety of discounted prices.

John G. Sperling, chairman of the Apollo Group, by contrast, has been trading his shares in the company very actively. On September 17, he declared direct holdings of 15,247,915 shares of Class A stock. He owns an additional 3,106,030 indirectly, through family members or trusts. At the end of October, his direct holdings alone were worth more than $619-million. From July 16 to July 24, Mr. Sperling made about $10.7-million when he sold 250,000 shares of stock in Apollo, the parent company of the University of Phoenix.

Extras like stock holdings help explain why, in some cases, the top officer at a company did not receive its largest salary. Mr. Sperling drew a base salary of $400,000 and did not receive a bonus. Including benefits, Mr. Sperling's compensation totaled $473,293, significantly less than the $612,500 earned by Todd S. Nelson, Apollo's president and recently named chief executive officer.

Similarly, Strayer Education's Ron K. Bailey, the company's president, pulled in only $50,000 in base salary and $1,238 in benefits. The company's chief financial officer, Harry T. Wilkins, earned nearly three times as much, with total compensation of $147,786. That does not mean that Mr. Bailey did not have a vested interest in the company's performance. Before Strayer recapitalized last spring, Mr. Bailey owned 7,175,000 shares of Strayer stock, which he sold at $25 a share for proceeds of $179.4-million.

Notably missing from the ranks of the highest-paid officers are female executives. Kenda B. Gonzales, Apollo's chief financial officer, was paid $345,665 in the 2000 fiscal year, but she was only the fifth highest-paid executive at the company. The four above her were all men.

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