Compensation: survey shows real change in CEO pay.While the beginnings of a transition were visible a year ago, a study of 350 of the largest public companies in the U.S. reveals that, in 2003, companies moved away from granting stock options to CEOs, rebalanced the long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. incentive mix for CEOs, reined in overall CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. pay and strengthened the link between CEO pay and performance. The 2003 edition of The Wall Street Journal/Mercer Human Resource Consulting Services Provided Human Resource Consulting firms provides advice to their clients regarding the financial and retirement security, health, productivity, and employment relationships of their global workforce. CEO Compensation Survey, which has tracked CEO pay trends in the U.S. for more than a decade, was published in April in The Wall Street Journal. On a number of key performance measures, companies fared better in 2003 than they did in 2002, and annual CEO pay reflected this improvement. Among the 350 companies studied, revenue grew by a median 7.2 percent, to $6.2 billion; net income rose a median 19.2 percent, to $318 million; and the median one-year adj. 1. completing its life cycle within a year. Adj. 1. one-year - completing its life cycle within a year; "a border of annual flowering plants" annual phytology, botany - the branch of biology that studies plants total shareholder return (TSR (Terminate and Stay Resident) Refers to a program that remains in memory when the user exits it in order that it be immediately available at the press of a hotkey. ) was 26.9 percent. (By comparison, median one-year TSR was -5.9 percent in 2002.) Correspondingly, the median CEO salary was $950,000 in 2003, up 3.8 percent over the prior year; the median annual bonus increased 6.7 percent, to $1.1 million. Median total annual compensation (base salary and bonus) was $2.1 million in 2003, up 7.2 percent. More than one-third of the companies (121 of the 350) did not increase the CEO's salary in 2003 (compared to 132 companies in 2002), and 39 companies did not grant an annual bonus to their CEO, compared to 50 in 2002. The most significant changes in executive compensation are taking place in the area of long-term incentives, with the most striking change the movement away from stock options. A total of 278 companies awarded stock options to CEOs in 2003, compared to 295 the year before, and the number of companies awarding option mega-grants (grants with a face value of at least eight times the CEO's total annual compensation) fell from 62 in 2002 to just 22 in 2003. Further evidence of this trend can be found in the pay mix for CEOs, with a decreasing use of long-term incentives (see table). Within the long-term incentive component, stock options dropped from 76 percent of the mix in 2002 to 62 percent in 2003, while restricted stock climbed from 12 percent to 20 percent, and performance cash/shares rose from 12 percent to 18 percent of the longterm incentive mix. In addition, Mercer's study shows that a total of 138 CEOs received restricted stock grants in 2003, compared to 104 in 2002.
Long-Term Incentives Lose Some Ground
2003 2002 2001
Annual incentives 37% 32% 29%
Long-term incentives 63% 68% 71%
Source: Mercer Human Resource Consulting
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