CEO pay takes a big drop

Posted by Marc Hodak on April 3, 2009 under Reporting on pay | 3 Comments to Read

Hope this parachute isn't golden

Finally, an article that looks at CEO pay from a more aggregated perspective, rather than out-of-context or anecdotal “can you believe how much this guy made?” stories. Particulars are as follows:

The median salaries and bonuses for the chief executives of 200 big U.S. companies fell 8.5% to $2.24 million

Including the value of stock, stock options and other long-term incentives, total direct compensation for the CEOs dropped 3.4% to a median of $7.56 million

Everyone reports “cash” versus “equity” compensation as a relevant distinction because that’s the distinction mandated in disclosures, because that’s how they evolved historically. I think it distorts the discussion to call equity “long-term incentives.” Incentives implies motivation to do something, other than pray for the value to go up. No managers, up to the CEO, are meaningfully ‘incented’ by equity in the sense of drawing a line between their behaviors and the results.

To me, the more relevant distinction is fixed versus variable. When the company chooses to give you $2 million each year in restricted stock, no matter how the company has performed, that looks like fixed compensation, every bit as much as salary. If the amount of stock granted is based on performance, it looks like a bonus, except paid in equity rather than cash.

While median CEO salaries grew 4.5%, bonuses fell 10.9% as profits decreased by a median 5.8%

So bonuses (or at least cash bonuses) dropped twice as fast as profits–a pretty good pay-for-performance sensitivity.

CEO compensation decreased more sharply at banks and brokerages, long the source of some of the biggest paychecks. Median annual cash compensation for CEOs in the financial industry fell 43%, to $976,000. Total direct compensation fell 14.2%, to a median $7.6 million.

Well, when you have Lloyd, Jamie, Mack, and others going from a eight-digit bonuses to zero, that’s going to have some impact on the industry’s averages.

eileen cohen said,

It is frightening to think of the big hand the government is taking in order to retain their Congressional and Senate seats, with a willing President to convey the message. Controlling compensation policies at the Federal level goes against all manner of what makes this country great – free enterprise and risk taking. We need to remember that risk taking is not bad, it is good for companies and for the economy.

I have moved on from the inevitable reducing compensation debate onto the government as activist shareholder – ie the firing of the CEO of GM. While he deserved to be tossed out years ago – it is the responsibility of the Board, current shareholders, and probably the bondholders. Big Brother is certainly on the rise!
jfoster said,

I agree with eileen. I have no love lost for Wagoner, and the government is entitled to set conditions for paying out big bucks to keep a company afloat, but something is wrong when the government-as-investor goes beyond replacing some board members who should be making that decision, to actually making that decision. Very wrong.
pippen said,

Why didn’t the prez fire the head of the UAW?