America’s Best-Paid Executive
Don’t worry about his golden years
© by Mark Reutter
Adapted from “The Posner Chronicles II,” published in
Warfield's, Baltimore’s Business Monthly, June 1990
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Victor Posner won’t be found among Miami Beach’s elderly citizens who scrape by on Social Security in tiny rooming-house pullmanettes.
Even before he became publicly famous in the 1980s, Posner collected salaries from a stable of obscure companies (NVF, DWG, Pecor, and Birdsboro) that, combined with his pay from Sharon Steel Corp., made him one of America’s best-paid executives.
In those innocent days of the Carter presidency, best paid in America meant $1 to $1.5 million a year. In 1979, for instance, Posner reported on his federal tax returns a salary of $1,370,726, plus an additional $254,019 in real estate income.
Come the 1980s with Ronald Reagan, deregulation, and dollar signs in people’s eyeballs – and Victor Posner again proved to be an innovator. While executive salaries rose steeply and were often unlinked to corporate performance, Posner’s take increased exponentially. Between 1980 and 1989, he drew at least $80 million out of the publicly held companies he controlled, according to SEC reports and court filings.
Regardless of the disasters that befell his companies, Victor was not denied his cash by boards of directors composed of his relatives, kids, and cronies.
EXAMPLE: To settle a stockholder’s suit, Posner limited himself to $225,000 income a year between 1973 and 1980 as chairman of Sharon Steel. Once freed from this restriction, he made up for lost time. By 1983, his salary and bonuses had rocketed 11 times above his 1980 take, and they continued upward in inverse proportion to Sharon’s mounting financial crisis. U.S. Bankruptcy Court filings disclose the following:
Year Operating profit (loss) Compensation
Before debt interest, taxes to Posner1983 $17.3 million $2,518,765
1984 $6.4 million $3,550,641
1985 ($53.4 million) $3,868,445
1986 ($44.5 million) $5,331,592
1/87 and 4/17/87
bankruptcy filing ($14.7 million) $630,641
The record shows that as Sharon lurched toward Chapter 11 bankruptcy (racking up $112.6 million in losses between 1985 and 1987), its chairman enjoyed $9,830,678 in salary and bonuses. Between 1983 and 1987, son Steven received $1,781,765 and four other family intimates (brother Bernard, nephew Martin, daughter Tracy, and former brother-in-law Mel Colvin) shared about $600,000.
EXAMPLE: When Business Week featured Posner in 1985 as America’s highest-paid chief executive, the magazine based his compensation on salary and bonuses from DWG alone. From that business, Posner took $12,739,421 – or $1.3 million more than Chrysler’s lee Iacocca, the second highest-paid executive, and $4.3 million more than T. Boone Pickens, chairman of Mesa Petroleum and third ranked.
But Posner was paid from many pockets. While collecting his salary from DWG, Posner also got $1,551,216 from NVF and APL, $3,868,445 from Sharon, and $1,023,866 from Pennsylvania Engineering and Birdsboro.
Yet even this was not all. In March 1984, company directors instituted a Management Incentive Plan and a Senior Executive Achievement Recognition Plan. The bonus plans, it was stated in 10-K disclosure forms, were designed to reward “extraordinary efforts” by senior management whose “strategy and decisions” contributed to the “short- and long-term range growth and success of the company.” During fiscal 1985, Posner was paid $3,941,000 for his extraordinary efforts. Son Steven received $25,000, and other officers shared about $100,000.
Add it all up and Posner’s true pay came to $23,123,948 in 1985. In the same year, Evans Products, controlled by Sharon Steel, filed under Chapter 11 bankruptcy; Sharon was unable to pay interest on its debentures; NVF lost $54 million; and DWG earned a negligible $5.6 million on $923 million in revenues.
Since then, Posner’s take has slowed, but scarcely stopped. The rudest interruption was in 1988, when U.S. Bankruptcy Judge Warren Bentz ousted him as chairman of Sharon Steel and ordered an independent trustee to run the company.
Luckily, though, Victor had found a new source of cash. Back in 1985, when he took over Fischbach Corp., Posner waived his salary as chairman as a concession to worried creditors. This led at least one news organization to write about a “new, reformed” Posner. Such noble self-sacrifice did not last long. Quietly in 1987, he entered into an employment contract with Fischbach that gave him a base income of $475,000 a year for the next 10 years, retroactive to October 18, 1985. As a result, even though Fischbach lost more than $100 million between 1985 and 1989, Posner had a guaranteed income stream of $2.1 million through the first quarter of 1990.
Over the years, several stockholders’ suits have challenged his compensation, but none of the suits has made a substantial dent in his take. It is hard to prove excessive compensation when there is no clear line separating “reasonable” from “excessive” pay.
The legal hurdle is compounded by Posner’s practice of splintering his pay among many companies. A shareholder is thus blocked from attacking the whole compensation package, and must hone in on the fraction paid by the company he has invested in.
In April 1988, Posner scuttled the Management Incentive and Senior Executive Achievement Recognition plans to settle a stockholders’ suit in Delaware Chancery Court. Yet outside of the provision that Posner would pay $800,000 in plaintiffs’ legal costs, the settlement was little more than a slap on the wrist. Bonuses going to Posner were not eliminated but rather limited to a total of $4.6 million a year, to be approved by a new Intercorporate Transaction and Common Officer Committee on the basis of “pre-established performance goals” and other criteria.
Who were members of the transaction committee? Posner packed the committee with three cronies who approved his earlier bonus and salary plans. It is not clear from SEC filings how much the latest incentive plan will contribute to Victor’s retirement nest egg.
Rest assured, though, that it will be more than Social Security.