April 22, 1996
Critics charge that top executives at large firms are making too much money. Others contend that executive pay is not a public issue, but a matter to be decided by shareholders, who, after all, own the companies that pay the executives. Nevertheless, such questions have been much in the news recently, and recent studies show that CEO pay is being more tightly tied to performance.
In 1992, the Securities and Exchange Commission revised its rules on the disclosure of executive compensation.
- Following that, a study of 1992-93 data revealed that median CEO base pay grew at a modest 6 percent; annual incentives, 10 percent; long-term incentives, 21 percent.
- It also showed that CEOs at higher performing companies out-earned their counterparts at lower performing companies.
- In 1994, CEO base pay and annual bonuses climbed only 10 percent, while overall corporate profits rose 34 percent.
Another study examined executive pay at 33 Orange County, California, public companies for fiscal years 1991-92 through 1994-95.
- Base pay as a share of total compensation at these companies fell significantly -- from 56 percent in 1992 to 42 percent in 1995.
- Yet base pay in absolute dollars still grew in two firms for each one in which it fell.
- Stock options grew from 23 percent of total pay to 36 percent.
- Annual bonuses' share grew slightly -- from 19 to 20 percent.
The study also established that base pay plus bonus payments rose and fell roughly in line with company net income.
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