By Cliff Peale
Enquirer staff writer

After what he has called one of the best three-year performances in Procter & Gamble Co.'s history, chairman and chief executive A.G. Lafley earned about $26 million in cash, stock options and long-term stock grants last year.

In a proxy statement mailed Friday to shareholders, P&G said Lafley made $1.7 million in cash salary and $3.5 million in bonuses for the fiscal year ended June 30. He elected to take the bonuses in stock options.

While the cash salary is 6 percent more than the previous year, the overall compensation is 35 percent more.

Lafley will get only 7 percent of the total amount now, without access to the restricted stock and stock options for at least two years.

And the value of the stock options is at risk; if the value of P&G shares declines below the exercise price, they become worthless. Options are a chance to buy shares of stock in the future at a set price.

Lafley's numbers are bigger because P&G has met and exceeded its long-term performance targets. For example, a shareholder-return element that helps determine bonus payments for Lafley and thousands of other P&G employees was 55 percent above target last year.

The proxy also included measures to be voted on by P&G shareholders at the company's annual meeting Oct. 12.

Like many companies, P&G has tried to tie its executive pay packages to performance and to compare salaries of all employees to those at peer companies. With the performance of the last several years, salaries at P&G are bound to be higher, said Dick Antoine, global human resources officer.

"It was great news, so the numbers are bigger," he said.

Last year, P&G earned $6.5 billion on sales of $51.4 billion. And its stock, adjusted for a 2-for-1 split, increased about 22 percent during the fiscal year.

P&G's other top executives saw similar increases, with the bulk of the additional pay in long-term stock awards or stock options

And most employees benefited as well. About 18,000 U.S. workers below management level received an average salary increase of 6.2 percent for the 2003-04 fiscal year, P&G said.

During the year, P&G gave about 90,000 global employees a special award of two free vacation days - or the cash equivalent - because of the outstanding financial performance. About 80 percent of U.S. employees elected to take the vacation time, and those who chose the cash received it starting this month.

Lafley's salary is sure to receive the biggest attention because of the big numbers and because of the attention paid to CEO salaries since the Enron and WorldCom scandals several years ago.

His pay package includes:

• Cash salary: The salary is $1.7 million in 2003-04, compared to $1.6 million the year before. P&G says the salary puts Lafley at the median of a peer group of about two dozen companies.

• Bonus: The bonus is $3.5 million, compared to $3 million in 2002-03. Lafley chose to receive the bonus in options, but he cannot exercise them for three years and must hold the proceeds an additional two years. P&G estimates the current value of the options in the proxy.

• Stock options: Lafley received two grants totaling 705,834 shares, with a combined present value of about $10.5 million, P&G said. That compares to $6.9 million the previous year, although the 2003-04 share grant covered 18 months. During the year, Lafley did not exercise any options.

• Long-term incentives: The grant of restricted stock units, internally called the Business Growth Program and based on three-year company performance, totaled nearly $9.9 million, compared to $2.7 million in 2002-03.

The payment is bigger this year partly because P&G back-loaded 60 percent of the three-year program in the third year. Lafley will receive half the long-term award in September 2007 and must hold the remaining half until retirement.

---

E-mail cpeale@enquirer.com