CEO Compensation up 44.8% in New England, Survey Shows; Compensation Increases Far Outstrip Performance Gains, DolmatConnell Finds.

NEWTON, Mass. -- Total compensation for CEOs at the 100 largest public companies in New England increased by a very significant 44.8% in 2004, more than twice the return the companies provided to shareholders, according to a survey released today by DolmatConnell & Partners, Inc.

"The survey shows that there's still not a close enough link between pay and performance," according to DolmatConnell President Jack Dolmat-Connell. "At many companies, CEO pay increases far outstripped performance gains. And at companies where performance went down, CEO compensation didn't."

The survey also shows that new accounting rules requiring companies to expense stock options may be leading to the unintended consequence of weakening the link between pay and performance. Since the new rules were introduced, many companies have shifted to restricted stock and long-term incentive plans (LTIPs), according to Dolmat-Connell, but restricted stock is less dependent on performance than stock options are.

"Executives benefit from stock options only if they can boost the stock price after the options are granted," he explained. "If they can't improve performance, the options are worthless. The executive who receives purely time-vested restricted stock can cash out even if the stock drops in value. The incentive to improve performance is not as strong."

The survey by DolmatConnell and Partners, which is based on 2005 proxy statements, found an 8% decrease in companies that provide stock options, a 13% increase in companies that provide restricted stock and a 46% increase in companies that provide LTIPs. The survey also found that:

--Base salaries increased 8.5%, from a median of $691,000 to $750,000, significantly greater than pay increases for the general employee population

--Bonuses increased 31.4%, from $675,000 to $887,000

--The value of long-term incentives (including stock options, restricted stock and LTIPs) increased 16.6%, from a median of $2.33 million to $2.71 million

"Add it all up, and total compensation increased 44.8%, from a median level of $3.4 million to $4.92 million," DolmatConnell said. "While shareholders of New England's top companies did well in 2004, with median returns of 20%, CEOs at the same companies did much better. This is just one sign that true 'pay for performance' is still a long way off."

Dolmat-Connell adds that, while Compensation Committees are responding to shareholder pressure to tie pay to performance, many issues still need to be addressed, including how pay levels got to where they are, how comparative peer groups are being defined and how performance targets are set.

Survey results are available on request by contacting Dolmat-Connell at [e-mail] or 978-697-4349.

DolmatConnell and Partners, Inc. is the compensation and benefits consulting arm of The Odyssey Companies, which also includes The Patriot Financial Group, the benefits plan financing and financial/estate planning arm of the firm. The Odyssey Companies believes that integrating these services enables companies to provide executives and employees with The Right Pay (with amounts tightly linked to performance), The Right Protection (comprehensive, cost-effective benefits) and The Right Planning (financial and estate planning to meet long-term goals).