More CEOs Share the Pain
from September/October 2008
by John R. Engen
While some big-company CEOs still got paid mightily in 2007 as their companies (and investors) foundered, various studies based on proxies indicate that boards are doing a better job than in the past of tying pay to performance.
Mercer LLC, a consulting firm, found in its annual survey that median direct compensation—base salary, annual bonuses, and long-term incentives granted—declined 15.8% last year, to just under $14 million, for CEOs of the 50 biggest companies (those with revenues greater than $40 billion). The number excludes exercises of past equity grants. Total pay for CEOs at the next tier of companies (with revenues from $7.4 billion to $40 billion) was essentially flat, at $9.4 million. CEOs of companies with lower revenues saw their pay drop 4.6%, to about $4.7 million.
A similar study by the Corporate Library, a shareholder watchdog and research firm, found that pay was still climbing for CEOs of 380 companies who had been on the job at least two full years. Nevertheless, “there’s been a significant slowdown,” says senior research associate Paul Hodgson. He points to 2007’s 5% increase, versus a 12.7% rise in 2006, and attributes this “step in the right direction” to stronger linkages between pay and performance.
According to Mercer, base salaries for CEOs of large companies generally rose in line with inflation in 2007, while long-term equity-grant values were flat. Annual bonuses plunged, however, victims of the tough economy and the credit crunch.
Formerly, Hodgson says, when times got tough boards would sweeten the pot as a way to encourage CEOs to achieve certain goals. Last year total comp was more likely to reflect shareholders’ pain, which was plentiful in the midst of the economic downturn. James Tobin, 63, CEO and a director of Boston Scientific, a medical device and treatment company, got a 91% pay cut, down to $2 million—a palliative for his shareholders, perhaps. Their total return fell 32%.
