So much has happened over the last couple of years that we never thought could.
Home prices collapsed. So did Lehman Bros. Holdings Inc.
The federal government bailed out two-thirds of the domestic automobile industry.
And, of course, overall executive compensation has fallen for the last two years.
The last is the most preposterous of all, I know, because it seems pay never goes down for CEOs and their executive teams. But pick your favorite survey of executive pay, and all of them found a decrease in compensation levels in 2009.
There's no mystery why. The biggest part of most executives' compensation is awarded through grants of stock or stock options. The downs, ups, and then downs again experienced by the stock market have done a number on the value of stock grants and made many an option worthless.
Other business performance measures on which compensation is based have also been challenged by the economic recession that began in December 2007. Revenue has fallen or flattened for many companies. Backlogs are down. Profitability has rebounded, but experts attribute that largely to cost-cutting not growth.
The Inquirer's annual survey of CEO compensation, conducted by pay-research firm Equilar Inc., found that 2009 median pay fell 7.4 percent from the previous year for the CEOs of 147 companies either with headquarters or significant operations in the Philadelphia region. Last year, Equilar said 2008 median pay fell 9.6 percent for the CEOs of 155 companies.
This development will not bring a tear to anyone's eye. And as you can read elsewhere in this section, 32 of the CEOs on this year's list still received more than $10 million in total compensation.
But to one executive-compensation expert that I spoke with, the decline is a sign that the elaborate incentives we read about in annual proxy statements are working as intended: When performance isn't there, neither is the extra pay.
Jon Weinstein, who leads the executive-compensation practice for Towers Watson & Co.'s East region, consults with the compensation committees of boards. A year ago, when it came time for boards to award equity incentives, there was a reality check, he said.
"Many folks said, 'We can't give you twice as many shares at half the price to deliver the same value,' " he said in an interview at Towers Watson's Centre Square offices across from City Hall. "It's just inappropriate given performance, inappropriate given the stock price, and frankly, often, the company didn't have the shares to allocate in the first place. So people received simply smaller awards or awards of lesser value last year."
I wondered if Weinstein expected executive pay to spike higher for 2010, given that corporate profit has soared for the last several quarters. While he does foresee an increase in pay, it won't be to the levels it was before the recession, because there is widespread "downward pressure" on executive compensation.
That pressure, he said, is coming from corporate-gover- nance groups, big institutional investors, the Obama administration, as well as the increasingly influential firms who advise institutional shareholders on how to vote their shares.
RiskMetrics Group Inc.; Glass, Lewis & Co. L.L.C.; and other governance-analysis firms directly apply their pressure by recommending whether members of a board's compen- sation committee should be reelected.
"When that 'against' recommendation comes in against a board member, there's quite a bit of concern," Weinstein said, "concern about the [pay] practices and what might have triggered it, and personal concern that, as a director, 'what does this mean to my reputation? What does it mean to the company's reputation?' "
More and more, shareholders are getting the chance to vote, through nonbinding "say-on-pay" proposals, on how a company is paying management.
Still, of the more than 400 companies that held such votes this year, the outcomes have been "overwhelmingly in favor of the executive pay that the company has been providing," Weinstein said.
But not every one is a slam dunk. This spring, shareholders rejected the pay plans of KeyCorp, Motorola Inc., and Occidental Petroleum Corp.
"That created quite a ripple," Weinstein said, "and led people to realize, 'My gosh, things may not be the same in the future as they've been in the past.' "
The heat over executive pay never goes away, although it may lower to a simmer when the economy is booming and the stock market is flying.
Weinstein said the anger expressed by many Americans over the level of pay collected by the most highly compensated has reached the ears of board members, especially during the last two years.
"When people are struggling, when unemployment is high," he said, "those executive-pay figures are in sharp relief to what so much of America is feeling."
Contact Mike Armstrong at 215-854-2980 or firstname.lastname@example.org.
See his blog at www.phillyinc.biz