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10 May. 2011 | Comments (0)

Now that two other major news organizations have confirmed it, I guess it can be proclaimed that indeed CEOs of American public companies received sizable compensation raises in 2010. In the past week, both the Associated Press and Wall Street Journal reported that U.S. CEOs made more than $9 million (median) in 2010, a jump of more than 10 percent from 2009. But the bigger takeaway from these reports, specifically that of the Wall Street Journal and the Hay Group, is that while executive pay is going up, a growing number of companies are dropping perquisites (perks) and more companies are aligning pay with performance. The Conference Board, which convened a task force on executive compensation in 2009, is pleased to see some progress on such issues because they represent two of the five guiding principles the task force established. Those two principles from The Conference Board Task Force on Executive Compensation I am referring to are:
  • “Paying for the right things and paying for performance: It is critical that executive compensation programs link pay directly to results that help achieve the company’s business strategy, are consistent with the company’s values, and reflective of a risk profile that is appropriate in light of the company’s strategy and systemic considerations.
  • Avoid controversial pay practices: These pay practices, i.e. perks, generous severance agreements, excessive golden parachutes, tax gross-ups, golden coffins, should be avoided, except in limited circumstances where special justification exists. If used, the rationale for these practices should be clearly and plainly discloses to shareholders.”
The WSJ/Hay Group study found that compensation committees were focused on aligning pay with company performance in 2010, steering away from retention-oriented, time-vested stock plans and toward plans that pay out only when companies achieve long-term objectives. Specifically, the study reported that performance awards made up 41 percent of long-term incentive value in 2010, compared to 37 percent in 2009. Also, the study found that a rising number of companies eliminated perks. There were 55 companies, or 16 percent of the sample, that disclosed they dropped at least one perk. At the top of the list were: tax gross-ups (28 companies) and country club memberships (10 companies). “CEO pay has been under significant scrutiny, and some may have expected to see a different outcome in the 2010 proxies. But don’t let the figures misguide you: change has occurred,” said Irv Becker, national practice leader of the U.S. Executive Compensation Practice at Hay Group. “The real story is under the hood of executive pay. Many companies have restructure programs to align pay with performance by putting greater emphasis on performance-oriented long-term incentive programs.” If you remember my recent post (“Early Returns on Executive Compensation: Higher Pay, More Shareholder Involvement”), the New York Times and Equilar in their annual executive compensation report found that the median compensation for top executives from 200 major companies increased 12 percent to $9.6 million in 2010. The AP study, which also involved Equilar, focused more on the relationship between company earnings and executive pay. The AP reported it used the Equilar data to analyze CEO pay packages at 334 companies in the S&P 500 that had filed statements with federal regulators through April 29. Pay was analyzed at companies that had the same CEO in both 2009 and 2010. In the end, the AP study found that while earnings rose 41 percent among the companies surveyed, CEO pay went up 24 percent in 2010. While CEO pay continues to rise despite what many economists call a tepid economic recovery at best, the fact that perks are being declined and more performance awards are better aligned with company performance among some of the top companies does show some progress. But that doesn’t mean shareholders are satisfied. At last check, there have been 13 companies who have lost their Say on Pay
  • About the Author:Gary Larkin

    Gary Larkin

    Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…

    Full Bio | More from Gary Larkin

     

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