Beyond the Fringes

Pity the overcompensated superexecutive. As he gets up from lunch in his private dining room for a quick trip to the airport and then a long weekend at the company's Aspen condominium, he's as worried as a nonunion garbage man agonizing over how to make his $2.25 an hour meet the spectacular rise in the cost of living. He thought he was building a fortune in a pay plan that was relatively low on salary but high on such tax-sheltered supplements as deferred stock bonuses and options; but suddenly, the clever compensation gimmicks have gone sour. As he revels in the ego-boosting frills with which his firm has surrounded him, he wishes he had asked for more cash instead. The long-downtrending stock market and drastic changes in the tax laws affecting income and capital gains have turned the whole field of executive compensation upside down. After two decades during which thousands of corporate executives made fortunes on pay plans that leaned heavily on stock devices, the once-lucrative alternatives to high-taxed salary have lost much of their luster. For many men, they have proved to be costly mistakes.

Consider, for example, the woeful rise to financial failure of an executive who works for one of Fortune's top 500 companies. He was transferred to New York from California, where he had lived in upper-middle-class splendor on a salary of $30,000 a year. With his new job, he got a $10,000 raise, but that was the least of it. The company bought his ten-year-old, $35,000 California house for its appraised value of $45,000 and absorbed agents' fees and closing costs as well, so it seemed profitable to pull up stakes. Before the move, they flew him and his wife to New York--no work, virtually unlimited expenses and three free weeks in the company suite at the Barclay Hotel--to look for a new suburban house. It was fun. A few weeks later, they shipped his two cars East by rail, picked up all of his household moving expenses, flew him, along with his wife and three kids, across country first-class and gave them (continued on page 134)Beyond the Fringes(continued from page 115) a generous resettlement allowance to pay for replacing carpets, bookshelves, drapes and other lares and penates that had to be left behind.

His new status as a corporate vice-president was a heady improvement over his inelegant old title of division group manager. Far more important, the new job provided his first entry into the company's management incentive program, a tantalizing combination of rewards, fringe benefits and perquisites that made the salary increase seem almost inconsequential. He received an option on 5000 shares of stock, with promises of more to come as he progressed. They offered him the further incentive of a $12,000-to-$15,000 annual bonus, to be paid in shares of restricted stock, if profits continued to rise. He also got a new company-paid $120,000 ordinary-life-insurance policy with growing cash value that accrues to him if he stays on the job at least five years. His executive medical insurance covered not only normal surgical and hospitalization costs but dentalwork and psychiatric outpatient care as well. In addition, they gave him "termination of employment" insurance worth six months' salary to cushion the fall if he happened to get fired. The company also picked up half the initiation fee at his new country club in Westchester County and added a few other plums that the specialists in this sort of thing like to call psychological income--an office completely redecorated to suit his color and furniture preferences, two secretaries, a charge account at "21," frequent access to the company's executive jet for "business" trips with his wife, and a chauffeured car that calls for him in the morning and drops him off at home in the evening. Adding his new salary to what he believed to be the worth of all his fringes--what the specialists call his executive compensation package--his total haul amounted to more than $60,000 annually. In the old job, his fringe benefits had been pretty routine--group insurance, Blue Cross and a contributory retirement plan--so he figured that his real income more than doubled as a result of the move. He thought he was on the road to riches. Now, two years later, he's sorry he left California. Here's why:

• Company profits slipped, through no fault of his or of his division. Thus, the bonus never materialized. As we shall see, it was just as well, because by the time the restrictions on the bonus stock would have lapsed (restricted means he couldn't sell it for five years), he probably couldn't have afforded the ordinary income tax he would have had to pay, and the shares weren't worth much by then, anyway.

• In his eagerness to show his faith in the company, he lost more than $25,000 on his stock options. It was his own mistake, really, but it hurt just the same. His option was granted at a market price of $80 a share, callable in blocks of 1000 shares a year for five years. His accountant warned him that most men prudently wait almost the full five years, to see which way the stock price goes, before picking up any of their options, even though they are eligible to buy chunks of them earlier. But he wanted to impress his president by buying an equity in the company at the first opportunity. The stock was selling at 87 when he exercised the first 1000 shares; and in a rising market, it looked like a good move. To make the purchase, he took $20,000 out of a college fund he had saved for the kids and borrowed another $60,000 at 7-1/4 percent, using the stock as collateral for the loan. Right away, he had a paper profit of $7000. Then the market price began to slide. When it reached 57, his bank called to tell him the stock was no longer sufficient collateral on the loan. After wasting a trading day getting written authorizations to and from his banker and his broker, he finally unloaded the stock at 55. The bank took the $55,000 and wrote a new $5000 loan to cover the difference, leaving him with a loss of $25,000, plus brokerage fees and interest. The remaining 4000 shares of the option are worthless unless the stock climbs above 80 in the next three years, which is doubtful. Now he's worried about college for the kids. They're bright, but he makes too much salary for them to qualify for most scholarships. Yet the money he saved to send them to school is gone. Unless he borrows heavily or sells his house, they'll most likely have to work their way through.

• Although it seemed highly profitable at the time, he also lost money on the move to New York. While he enjoyed the illusion of a $10,000 gain on the painless sale of his California house, it cost him more than he gained--$62,500--for a smaller and much less pretentious place in a comparable Westchester community near enough to Manhattan to make the daily ride in the company Cadillac worth taking. Moreover, interest on his new and bigger mortgage was two percentage points higher than on the old one.

• The $10,000 salary increase was no blessing, either. It vanished even before he had time to congratulate himself on becoming a $40,000-a-year man with options. Here's where it went:

State income tax jumped from $1200 to $3000 a year ..........$1800

City earnings tax, peculiar to New York ..... 72

Sales taxes, up from about $350 to $600 a year.....$ 250

Higher mortgage payments and property taxes ..... 3200

Private school for teenaged son, who suffered an academic depression from the move .......... 2000

Club initiation and dues over and above company's share .......... 1750

High cost of the culture gap between the West, with its easygoing home, beach and tennis-court entertainment, and the East, where "good life" necessities include Broadway shows, high-priced restaurants, Caribbean winter vacations, etc. ..... 3500

Total $12,572

In a way, he was lucky. Some of the new expenses were deductible, so his Federal income tax went up by only $1200. But his net loss in the first year for accepting higher status and a lower standard of living in New York was $28,772. All that extra insurance didn't help, either, since he had to die, get sick, be fired, go crazy or have his teeth knocked out to get much benefit from it. Even the cash value of the life insurance was dubious, because all of his troubles have left him with an urgent desire to quit before he is qualified to pick it up. He still had the company Cadillac, but that tasted of gall, too. By the time the limousine got into the city and threaded its way through nerve-racking cross-town rush-hour traffic, it took him almost an hour and a half to get to work in the morning. The commuter train from his community took 35 minutes. The company jet wasn't much of a boon, either. Although he was free to take his wife along whenever he flew out of town, he knew that he would have to pay for her hotel, food and entertainment himself. He couldn't afford it.

Half a dozen corporate executives I know have undergone identical traumas. All of them suffered one or more of these dismal misfortunes when they moved into the executive suite. To a man, they insist that when the opportunity to change jobs comes again, they'll ask for every bit of their compensation in cash, period. If they can't have it that way, each one says he'll sit down with one of the nation's growing number of executive-compensation specialists before he takes a new job and try to work out a foolproof pay plan.

The problems of these melancholy executives are typical of the tax and stock-market headaches created by many compensation programs designed in the (continued on page 243)Beyond the Fringes(continued from page 134) past two decades to increase motivation and to give salary-rich but tax-poor businessmen a chance to build private fortunes by steering some of their income through generous gaps in the tax laws. At the same time, many of the pay gimmicks were designed deliberately to bind executives to their companies with what were called golden handcuffs--deferred awards of money and stock whose future delivery was contingent upon continued company loyalty. But changes in the tax laws--most recently, the tax-reform law passed by Congress late last year--and an almost cataclysmic yearlong slump in the stock prices of publicly held corporations have turned many of the once-lucrative fringe benefits into anti-incentives.

According to one management consultant who specializes in devising executive pay plans for big companies, thousands of top management men are stuck with worthless and, in some cases, money-losing stock options that have gone down with the plunging market. "Smart recruiters have had a field day in the past year, going after executives whose options are valueless," says Robert B. Pursell of Coloney, Cannon, Main and Pursell, New York--based management consultants. Another high-level Manhattan pay specialist, Reed Roberts of Sibson & Company, says, "What once was a very important part of a top executive's income has ceased. In fact, options have become a burden." But Roberts doesn't lament the loss. "We've felt for the last couple of years that stock options are inappropriate for large, mature companies. The individual executive had to put up too much money in front to get too little income in the end, because growth in these companies tends to be slow. Now, many of the men who have borrowed money to buy their option stock must either sell at a loss or put up more collateral to cover their loans."

Even in their heyday, when the market was up and pre-1964 tax laws permitted capital-gains tax treatment on stock held for only six months, options were a mixed blessing for quite different reasons. In many cases, particularly in the fast-growing "hot" companies such as Xerox and IBM, generous options granted at low prices turned dozens of salaried executives into millionaires within a very few years. Instead of inspiring greater incentive to work harder for the company that made them rich, the overnight fortunes led some of the top men to quit and set up their own businesses, often in competition with the old boss. Options were counterproductive in other ways, too. I remember a vice-president who got a whopping stock option to join the Curtis Publishing Company when The Saturday Evening Post was sinking in the early Sixties. The purpose of the option, granted at a price of 5?, was to motivate this business genius to do all that he could to turn the company's fortunes upward. The stock's price hardly moved for two years, until reports of a bonanza ore discovery by the Texas Gulf Sulphur Company on land adjacent to Curtis property in Canada sent the price soaring on a wave of wild speculation. When it reached 18, the Curtis vice-president exercised about half of his option. Then he turned right around and sold the stock on a put--a device that allowed him to collect the present market price but hold the stock for delivery in six months, thereby qualifying for capital-gains tax treatment. His profit, after taxes, was more than $100,000.

"At last I've got my mad money," he boasted to me. "Now I can afford to quit these bastards whenever I want to."

Unhappily, he stayed on, in the hope that he could make another killing on the remainder of his option, but his attention was focused more on making his newly won capital grow than on helping Curtis, which may be one of the less important reasons why the Post eventually slid into oblivion.

For almost 20 years, stock options ran a close second in popularity to the oldest and most widely used form of incentive pay, the year-end cash bonus. Options began to fade as a source of quick riches in 1964, when a change in the tax laws extended the capital-gains holding requirement from six months to three years, thereby magnifying by six times the risk of executives who kept a nervous eye on the stock market while waiting out the new holding period. Some specialists predicted that the use of stock options as an incentive device would die as a result. Paradoxically, the number of companies granting them continued to grow. New executives, impressed by stories of the fortunes made by their option-rich predecessors, demanded them. "You'd be surprised how many of those guys never really understood what their options meant, or even what their total packages amounted to," says Pursell.

The 1969 tax-reform law makes it clear even to the ignorant, however, that most stock-compensation plans, especially stock options, have at last been mortally wounded. Any such device to qualify for capital gains has lost some of its attraction simply because capital-gains taxes under the new law are higher than they were, up to as much as 35 percent. Stock options suffer an even greater penalty under a new clause that defines the appreciation on optioned stock as "tax preference income" and adds a ten percent surtax to the already higher capital-gains assessment.

"This law is a ring-tailed stinker," says McKinsey & Company's Arch Patton, the dean of compensation specialists among international management consultants. "It's so complicated that it will make millionaires out of a lot of tax men. It may be months before we understand the full effects of the new law on all the different forms of executive pay, but one thing is already perfectly clear: It makes cash more attractive and almost every other compensation device less attractive."

There are almost as many varieties of payment as there are of top executives receiving them. The most popular, after immediate cash bonuses and stock options, are these:

• Current stock bonuses, on which the value of the stock is immediately taxable at ordinary income-tax rates.

• Deferred cash or stock bonuses, on which payment is staged over a period of years, usually five to ten. They are particularly attractive to older executives, who benefit by taking their deferred income after retirement, when their taxes aren't as high.

• Nonqualified stock options, which allow an executive to buy his company's stock at a bargain price at any time during a set period of years. However, the executive does not qualify for capital-gains tax treatment when he sells.

• Restricted stock, which is granted on either a stock-bonus or a bargain stock-purchase plan. The restriction usually means that the executive can own the stock, thus vote it and receive dividends, but he cannot sell it for a specified period, sometimes not until he retires; and even then, he must sell in increments, not all at once. Until recently, the advantage in addition to dividend accumulation was that the stock had no market value until the owner was free to sell it; therefore, he postponed paying tax until that time. Then he was taxed on either the value of the stock at the time it was given to him or on the current market price, whichever was lower. Moreover, he qualified for capital gains on any appreciation above the market price at the time he got the restricted stock. But the new tax law has closed that capital-gains loophole, too.

There were and are many other less popular compensation devices--omitting pension plans and the increasingly fashionable profit sharing, which really is no more than a supplement to or substitute for a retirement program--but none of them has been more widely copied in the past couple of years than the restricted-stock gambit. Many companies, among them American Cyanamid, National Cash Register, Uniroyal and Dow Jones, used restricted stock for incentive bonuses and incidentally strengthened the golden handcuffs on their top executives, since the payoff on restricted stock was subject to continued employment. Other companies--the most prominent was International Telephone and Telegraph--set up restricted-stock purchase plans whereby executives above $20,000 a year could buy the stock at half its market price, which amounts to a sort of 50-50 contributory bonus.

A more esoteric device that caught on was something called phantom stock, an Alice-in-Wonderland trick in which executives were given imaginary stock. Instead of getting real shares, thereby diluting the stock of the company shareholders, the executives received make-believe stock units entitling them to both dividend payments and the rewards of capital growth: If the value of the real shares went up during the time they held the phantom stock, the employees received the appreciation in cash. Some companies even tied phantom shares to stock-option plans, so that if the market value of the stock went down and the options became worthless, the executive at least got the benefit of dividends while he waited to see if his options were worth exercising.

The almost bewildering variety of pay devices invented during the past decade inspired a few companies to establish what amounted to compensation cafeterias for their senior executives. Instead of simply giving a man so much salary, so many stock options, so much insurance and so much bonus, they said, "Here's X thousand dollars; take it any way you want it, in any combination of compensation schemes that fits your needs." The cafeteria approach wasn't widely copied, however, because trying to cope with a different pay plan for every man in management created too many administrative headaches. Some of the gimmicks wouldn't have looked very good in a cafeteria line, anyway.

Not long ago, Fortune discovered an especially juicy-sounding device then taking hold in a few medium-sized companies on the West Coast. The company would use borrowed capital to buy into a speculative land-investment partnership and make its executives limited partners. All they had to pay was tax-deductible interest on their gratis shares of the borrowed investment capital. As long as real-estate values went up, they had a perfect capital-gains tax shelter with guaranteed profits on virtually no investment. The company, too, stood to make a killing while, at the same time, giving huge incentive awards to its executives, at no cost to itself. Unhappily, the scheme washed out in at least one case, when local land values slumped. The company was stuck with a loss that was hard to justify to its stockholders and the executives were left empty-handed after holding what had looked for a time like a golden goose.

"Large, publicly held companies wouldn't touch a plan like that with a ten-foot pole," says Reed Roberts. "Quite aside from the possible conflict of interest, it practically guarantees that management will spend at least some of its time looking after real-estate holdings, instead of tending to the company's business."

"Most people are better off with pure cash on the barrelhead," notes Pursell. "The new tax law essentially takes capital-gains treatment away from long-term gimmicks. And with a little wisdom, a man can usually do as well or better, in terms of capital growth, by getting immediate cash, paying the tax and investing what's left."

Carl Nagel, a top executive recruiter at Antell, Wright & Nagel in New York City, tells of one high-ranking vice-president he was trying to lure with fat incentive benefits from an unspectacular salaried job to the presidency of another company. The man was reluctant to take the offer seriously until his prospective new board chairman said, "We have a compensation plan worked out that will make you a millionaire in a few years."

"That got his attention," says Nagel wistfully. "Then the six-figure salary transfixed him. There's just a huge psychological plum in being on the list of guys who make more than $100,000 a year."

Arch Patton recalls another newly recruited company president to whom a high cash salary seemed superfluous. He was a wealthy man with a huge personal income from inherited family resources. The board of directors that was wooing him to his new job understood this and thoughtfully worked out a package that included a low salary and large restricted-stock bonus and option arrangements, in order to shift the bulk of his compensation away from cash, on which he would have to pay the maximum 70 percent income tax, into the far more beneficial capital-gains area. "He refused the elaborate stock package," says Patton. "He wanted almost all of his compensation in salary, even though he could keep very little of it. Money wasn't important to him. He wanted the psychological boost of being one of the highest-salaried executives in the country. A man's salary, after all, is a large measure of what his superiors and his peers think of him."

Under the 1969 tax law, such salary-rich executives probably will be better off, anyway. It's too new and too complicated to have generated widespread changes yet in corporate pay policies, but most of the experts foresee a much greater reliance on old-fashioned cash as the principal executive incentive of the future. "The trend is, and should be, away from gimmicks," says Pursell. "They were a mixed blessing, anyway, even before the so-called tax reform. They tended to take management's eye off the ball, to encourage a greater preoccupation with stock-market performance than with day-to-day company goals."

But the trend to cash creates some problems. One of the reasons behind the plethora of stock schemes was the need to help executives build proprietary interests in their companies, thereby strengthening motivation and, again, tightening the corporate grip on them. The same need for an executive equity stake continues, regardless of the tax laws. In many cases, restricted-stock plans and deferred-stock bonuses will continue to fill the need, as they have in the past. Free or half-priced stock, after all, is worth money, even if the market is down and capital-gains taxes aren't what they used to be. But there are some other methods, too, for building proprietary interest.

Pursell recently invented an ingenious plan for one of his clients. It was a mature company whose stock performance was unspectacular even before the slump, and the executives were unenthusiastic about stock options and stock bonuses, because there was little chance that the price level would change. He worked out a new kind of phantom equity based on the convertible debenture, a corporate bond that pays interest and has a face value callable either in cash or in shares of stock when it matures. By giving its executives what amounted to make-believe debentures, the company guaranteed that--at the very least--they would receive interest and a cash bonus equal to the face value of the phantom bond when it matured. If the company's stock appreciates during the maturing period, the executives will gain even more by exercising the convertible feature and taking the bonus in stock.

Another new angle devised for one of Sibson & Company's clients is a leveraged, closed-end mutual fund that creates a capital-gains shelter for what is, in effect, an elaborate executive bonus plan. Like the unhappy real-estate-investment gimmick, it has pitfalls; but when the fund device works, it does so at no cost to either the company or its executives, and it benefits both. The fund's closed-end feature means that the executives are not permitted to sell their shares in it. Leveraged means the fund can work on borrowed capital; thus, the company doesn't have to dip into its own reserves to finance it. The borrowed capital is invested in a diversified portfolio that includes some of the company's own stock. While the fund exists, the executives receive regular dividends, as does the company. At the end of a set period, perhaps five years, the fund will be liquidated and its capital gain will be divided among the executives according to a pre-established formula that pegs each man's payout to the company's own performance, thereby building in-house incentive. If the fund is successfully managed, everyone profits from it; but, like the real-estate deal, it's subject to the whims of the stock market.

Under the new tax law, however, cash reigns supreme. One salutary effect of the law will probably be a spate of fat pay increases for top executives, particularly board chairmen and presidents whose salaries have remained relatively static while their stock bonuses and other kinds of compensation have climbed. Albert L. Nickerson, the chairman of Mobil Oil, for example, has been drawing an annual salary of $225,000 for years, taking his income boosts in forms other than a simple raise. Assuming that he has been paying the maximum 70 percent income tax, a salary boost worth only 30 cents on the dollar obviously wouldn't be very rewarding. But under the new law, the maximum personal tax rate drops to 60 percent next year and 50 percent in 1972. By then, 50-cent dollars should look pretty good, better in many cases than deferred bonuses in cash or stock.

It's difficult to get enthusiastic about big raises among highly paid company presidents, but the increases will have a beneficial effect on thousands of men with smaller ambitions, because even lower-level executive salaries are directly related to the annual pay of the top man. The relationship follows a consistent pattern in most companies, according to the 1970 Dartnell Survey of Executive Compensation, published by the Dartnell Corporation of Chicago, one of a number of firms and trade associations that survey compensation schemes each year. Quite simply, if the president's salary is $100,000 a year, his executive vice-president rarely earns more than $70,000; his top marketing man, $55,000; his top financial executive, $52,000; and so on down the line. If the president doesn't get a raise, neither do the rest, because increases would upset the pay differences and, therefore, the pecking order separating the ranking executives.

Until the new tax law, these static salary levels at the top didn't matter much to the president and his major subordinates, because they got their annual raises in other forms. But they had a depressing effect on middle-management men who usually work for straight salary and don't qualify for the other goodies. Robert Pursell calls this phenomenon the middle-management sag and believes it has become particularly acute right now in many industries. The sag is especially distressing to the $20,000-to-$30,000 middle-management man who has adopted an upper-middle-class standard of living and finds the cost of the good life rising spectacularly while his salary stands still, simply because the corporate salary hierarchy can't raise him without bumping themselves into prohibitive tax brackets. Most of the experts agree that the upper-middle-class cost of living jumps during inflation at a rate at least double that shown by the blue-collar-based Consumer Price Index. A Sibson & Company survey not long ago indicated that it climbed as much as three times as fast. Thus, while the cost of living for a semiskilled laborer in New York City jumped about seven percent last year, the costs of a middle-management man who finds such things as finer clothes, dining out, club memberships, golf, yachting and theater tickets essential to his life style jumped at least 14 percent. If he earned $30,000 and didn't get a $4200 raise in 1969, he should either lower his standard of living or look for a better-paying job.

Pursell and others believe that relief can't come soon enough, because there is a growing shortage of qualified people in the middle to upper-middle levels of management. Because of low birth rates during the Depression, there just aren't enough people to meet industry's needs in the 35-to-45 age group, from which most middle-level executives come. Thus, if business is to avoid a new wave of job jumping for better salaries, the sag must be corrected. Lucky company presidents now can justify raises for themselves on compassionate grounds; they're making room for a better deal for the poor middle-management men.

They may soon find other reasons to stop worrying about job jumping, however. There are indications that the buoyant post--World War Two era of job mobility is coming to an end. Carl Nagel says that since about July of last year, his firm and other executive-recruiting outfits have run into an increasing wave of resistance among executives they seek to entice away from one job to another. "These people seem to be digging in their heels," he says. "Suddenly, there's much less mobility than there was and things like higher salaries and clever incentive compensation plans don't seem to make a difference." In most cases, he says, the reluctant recruits cite family reasons or explain that with so much unasked-for change going on about them, they don't want to rock the boat. A number of them have cited a fear of upsetting their teenaged children by pulling up roots at a time when young people already seem rootless, even on long-familiar home turf.

Pursell goes a step further. "There's a growing reluctance to change jobs even within a company, if it involves a change of location. I think it reflects a general change of values throughout our society, the beginning of a new era."

The president of a large investment firm who has noticed the same growing resistance to change among his own people feels that middle- and high-level executives, like everyone else in the country, are feeling increasingly insecure as they see the nation's troubles burgeoning both at home and abroad. "In a sense, they're developing a womb complex," he says, "hanging onto the security of a familiar job in familiar surroundings, even at the cost of passing up higher pay and greater challenges. As security fades away all around them, they try to shore up what they have by standing pat."

The same kind of change seems to be going on in the realm of management compensation, quite distinct from the movement toward more and more cash as a motivator, according to George Petitpas, a top compensation specialist with Cresap, McCormick and Paget consultants in New York City. "Actually, there are two important trends running opposite each other," he says. "First, there's a great leveling, a decrease in the importance of marginal money. The idea of knocking yourself out for a couple of extra dollars is weakening. Money isn't what it used to be. It's even frowned upon by growing numbers of young people. The second trend is a greater emphasis on relating pay to performance, not because the extra dollars are useful as incentive but because pay is a yardstick and people see the justice in different rates of pay for different levels of performance."

A major problem a company faces in motivating people is to find ways to make the jobs more meaningful, irrespective of rewards. Some of the nation's big law firms, for example, are having trouble attracting top law-school graduates, even with starting salaries of $16,000 and promises of early consideration for partnerships. So several New York firms sweetened the kitty by offering generous allowances of business time and facilities for socially satisfying outside efforts such as volunteer legal work in the ghettos. In more prosaic industries, where social consciousness is probably less profound than among lawyers, companies try such devices as paid sabbatical leaves, special graduate courses at Harvard and other schools, longer vacations with pay (Ford gives its executives six weeks) and company support for prestige- and status-building civic activities.

One executive who graduated from Stanford 20 years ago thought he would never see the campus as a student again. Recently, his company sent him back for a ten-week executive-development program. His fees, salary and expenses cost the company more than all four undergraduate years had cost his father in the Forties. He's so grateful now that he won't even entertain the thought of changing jobs. As these so-called leadership rewards and job-enrichment programs grow in popularity, so do other morale-building extras, such as company cars, unlimited expense accounts, husband-wife business trips abroad, company-subsidized housing, club memberships and private dining rooms. One measure of the steady spread of such psychological income is the booming business in leased executive cars in New York, Chicago, Los Angeles and other cities. New York alone absorbs more than a third of Cadillac's annual limousine production.

However, none of the specialists thinks the presence of such states-building fringe benefits has much effect on whether a man will take a top-management job or on how well motivated he will be once he gets it. "The absence of these perquisites might mean something to a man after he's worked out the rest of his compensation package, but their presence doesn't necessarily increase his incentive," says Nagel. "The strongest motivators are the challenge of the job, the opportunity to run something and to associate with people he admires. After that comes money. And, after everything else, the perquisites play a small part."

The only executive he has ever come across who was crucially influenced by such a bonus, Nagel recalls, was a prospective company president who got everything he wanted from his new employer in the way of salary, options, bonus and insurance programs. The additional sweeteners--a company airplane, chauffeured limousine, private dining room--were good, too. In the end, his decision whether to accept or reject the job hinged on his board of directors' willingness to offer one final perquisite. "He wanted a third secretary to work overnight for him. The board was really sold on the guy, so they gave her to him. But he never even saw the girl. All he wanted was the assurance that someone would be in the office to take his dictation by telephone when he had an idea in the middle of the night."