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Friday, December 26, 2008

CEO compensation changing, but still rising

Recipe for debate over executive compensation:

Take an intractable credit crisis. Add mounting bank failures and the extinction of the independent Wall Street investment bank. Slowly mix in a recession. Pour in massive amounts of corporate bailouts. And deep fry in a $50 billion fraud perpetrated by a once-respected money manager.

There are those in the corporate world who simply can't imagine why someone would ask CEOs to take less money home. And while I'm clearly in the camp that people should be free to earn whatever they can, this is the year that CEOs need to show true leadership by sharing the pain many of their employees are feeling.

On Christmas Eve, the Conference Board said that changes in CEO compensation have already begun. The New York-based economic forecasting group said that nearly all industries are reallocating compensation towards stock and away from total cash compensation and stock options. That makes sense when you consider that the stock prices of nearly every company has cratered over the last year.

But here's an image problem: the Conference Board's Top Executive Compensation report says that median cash compensation increased in more than two thirds of the industries it studied. The biggest gainer? Insurance, up 34.39 percent. Not a great message in a year when the world's biggest property & casualty insurer, American International Group, had to be rescued by the federal government to the tune of $150 billion.

(The only industry to see a decline in median cash comp was construction, with a 22.36 percent decrease.)

CEOs in the food and tobacco industry topped the 22 industries studied with median total compensation of $6.34 million. Of that, cash compensation accounted for $2.7 million.

When the stock market is rising and the economy is expanding, complaints about how much the boss makes never seem to stick. In recession, CEO compensation should fall if that pay is tied to revenue performance. Kevin Hallock, a Cornell University professor who's a co-author of the Conference Board's report, says we won't know how the downturn affected pay until companies start issuing proxy statements in 2009.

And Linda Barrington, research director for the Conference Board, says that companies have to expect that there will be more focus than ever on compensation in the coming year:

"The financial market crisis and U.S. recession have contributed to eroding public trust in business leadership."
Posted by Mike Armstrong @ 10:49 AM  Permalink | File Under: Executive Pay | 1 comment
Comments   
  • 0 like this / 0 don't   •   Posted 1:20 PM, 12/26/2008
    CEO pay should be pay for performance. And performance not necessarily tied to the stock price, but performance of the company. In a way, less greed also provides a message to those who are losing. And pay based on actual performance figures, not just 'cooking the books'. And for those who state that the pool of CEO's is so small, just quit excluding so many potential executives just because they don't like like white men over 50. And $1 per year salary figures are window dressing, since few reduce their other non-salary benefits which in many cases is higher than their actual salary. I have no problem with pay for performance. But lately there has been a severe disconnect. High pay in good years, and high pay in poor years.
    — Montco voter


1 comments
About Mike Armstrong
Mike Armstrong, a business editor and writer for nearly two decades, is the Inquirer's business columnist and PhillyInc blog editor. Contact Mike via e-mail or at 215-854-2980
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