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Pay for Corporate CEOs is Falling
Daily Policy Digest

Economic Issues / Corporate Compensation

Tuesday, March 05, 2002
Contrary to popular opinion, pay for CEOs at America's top corporations fell last year and there is evidence the trend is continuing, according to a study by the consulting firm William M. Mercer. This new trend comes after years of criticism that the pay of corporate leaders is no longer tied to performance; that they were being rewarded even when businesses failed to thrive.

The analysis of 100 firms shows that:

  • Salaries and bonuses of chief executives dropped a median of 2.9 percent to $1.24 million.
  • That is largely because 59 corporations slashed or omitted their leaders' bonuses -- which are often linked to profitability.
  • Corporate profits sank a median of 13 percent last year.
  • Meanwhile, the CEOs' median total direct compensation fell 10.2 percent to $2.16 million -- a figure which includes salary, bonuses, gains from exercising stock-options, long-term incentive payouts and the value of restricted stock at the time of grant.
The decreases mark the first such declines in the 12 years that The Wall Street Journal has tracked such compensation.

Companies handled the cuts in various ways. Analog Devices reduced its CEO's pay 9.1 percent in conjunction with a cut for 2,500 of its highest-paid staffers. Tektronics reduced the salaries of its CEO and vice-presidents 10 percent. Cisco Systems lowered its CEO's pay to $1 at his request.

"The relationship between pay and performance is pronounced," says Mercer's Peter Chingos. "There's almost perfect correlation. This is the tightest relationship we've ever seen," he adds.

The findings show that corporate boards aren't substituting stock options for business leaders' missed or diminished bonuses.

Source: Joann S. Lublin, "CEOs' Pay Last Year Was Lowest Since 1989," Wall Street Journal, March 5, 2002.

For more on Corporate Compensation
http://www.ncpa.org/iss/eco/

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