CEO compensation reflects continuing focus on accountability.

NEW YORK--(BUSINESS WIRE)--Aug. 17, 1995--An analysis of CEO compensation at 251 leading U.S. corporations by management consultants Towers Perrin indicates a continuing focus on accountability to shareholders and pinpoints some differences in pay practices between high and low performing companies. The analysis, conducted annually by Towers Perrin, is based on data from the companies' 1995 proxy statements.

"Overall, this year's management pay practices demonstrate that companies are continuing to expose executives to more performance-based risk and to seek performance above an objective standard," said Paul H. Todd, manager of compensation research and development for Towers Perrin. "This ties to shareholders' growing activism and continued focus on a tight link between pay and results. In effect, shareholders have zeroed in on pay as a primary means of guarding and promoting their economic interests. They see the sizable total expenditure on pay for top management as just another piece of their total investment in a business. And they want a clear return on that investment in the form of increasing shareholder value."

Evidence of the emphasis on accountability shows in several areas. For instance, according to the analysis, a number of CEOs continue to be "penalized" for poor performance. 17% of CEOs in the same position between 1993 and 1994 received no salary increase last year, while 5% actually had a drop in base pay. Another 21% received smaller or no bonuses.

Moreover, base pay rose fairly moderately for CEOs who held their positions for the past two years. The CEO median base salary rose 7% to $785,000, up slightly from the 6% increase recorded a year earlier.

Many CEOs did nonetheless profit handsomely in 1994, largely because of increases in the variable performance-based elements of pay. As might be expected in a year of strong corporate results, annual bonuses increased significantly, with the CEO median bonus at $660,000, up 20% for this constant population of CEOs. As a result, 1994 CEO median total annual compensation (base salary plus bonus) rose almost 16%--to roughly $1.5 million--mirroring the 15% rise in net income recorded for the survey companies in 1994. CEO median total direct compensation (salary, bonus and the expected value of long-term incentives) rose to $2,600,000, up 17%. Emphasis on Variable Pay

The Towers Perrin analysis confirms the continuing importance companies place on the variable pay elements. Annual and long-term incentives made up for more than two-thirds (68%) of the CEO average total compensation mix in 1994. Salary has continued to shrink as a portion of the total package, largely because base pay increases have been far outpaced by growth in incentives. The table below shows the average pay mix for the 251 company sample in 1994 relative to the typical average pay mix in 1989: -0-

                        1994          1989

Base                     32%           40%
Bonus                    25%           26%
Long Term
 Incentives              43%           34%

Stock options remain the most commonly used vehicle for long-term
incentives, as the following prevalence table shows:

                        Type          Prevalence

                  Stock Options       75%
                  Restricted Stock    42%
                  Performance Shares  18%
                  Performance Units    9%
                  Performance Cash    12%

Significantly, the analysis also found that CEOs tend to own fairly substantial amounts of stock in the companies they manage. Among the 1995 survey sample, CEO median share ownership was slightly more than 6 times base salary. And, at the 75th percentile, it was almost 13 times base salary.

Performance Differential

As part of its analysis, Towers Perrin divided the survey sample into three performance categories based on 1994 total shareholder return. This revealed some interesting differences in pay practices between the higher and lower performing companies. Higher performers provide higher overall levels of pay -- and in more variable forms. The 1994 median bonus among higher performers was 100% of base salary, compared with 66% among CEOs of lower performing companies. Higher performers also make larger long-term grants, with the median expected value of such grants reaching 174% of base salary, versus 119% of base salary among lower performers.

"While this certainly doesn't prove that companies get what they pay for, it does indicate that at the very least they're paying for what they get," said Todd. "In other words, the pay/performance link appears to be alive and well across our performance categories, with the higher performers paying out far more in total than the lower performers. CEO median total direct compensation (base salary, bonuses and the expected value of long-term incentives) was just over $3.1 million at the higher performers, roughly $1 million more than the comparable figure for CEOs at the lower performing companies."

Todd also noted that CEOs of higher performing companies tend to own more stock than their counterparts at lower performers. Among the top performing group, CEO median stock ownership was over 7 times base salary, compared to 5 times base salary among lower performers.

The Towers Perrin 1995 proxy analysis included 251 companies across a range of industries. 87% are industrial and service companies, with sales ranging between $367 million and $152 billion. Median sales were $5.7 billion. The remaining organizations are financial institutions with assets ranging between $1.3 billion and $250 billion. Median assets were $52.5 billion.

Towers Perrin is one of the world's largest management consulting firms. It helps organizations manage their investment in people, advising them on human resource management, employee benefits, risk management, compensation and communication as well as overall strategy and organizational effectiveness. Headquartered in New York City, the firm has approximately 5,200 employees and offices in 74 cities worldwide.

CONTACT: David Fridling, 914/745-4179